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Capital and Revenue Expenditure. Capital expenditure. Buy fixed assets or Add to the value of an existing fixed asset. Revenue expenditure. Day-to-day running of business. Think it over. Buying a van Petrol costs for van Repairs to van Putting extra headlights on van Buying machinery

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Presentation Transcript
capital expenditure
Capital expenditure
  • Buy fixed assets or
  • Add to the value of an existing fixed asset
revenue expenditure
Revenue expenditure
  • Day-to-day running of business
think it over
Think it over
  • Buying a van
  • Petrol costs for van
  • Repairs to van
  • Putting extra headlights on van
  • Buying machinery
  • Electricity costs of using machinery
  • Painting outside of new building
  • Three years later – repainting outside the same building
think it over5
Think it over
  • A builder was engaged to perform some work on your premises, the total bill being $4,500. If one-third of this was for repair work and two-thirds for improvements, what will be the correct accounting treatment?
think it over6
Think it over
  • On 1 January 2009, DEP Tour Operator Limited purchased four second-hand tour buses. The list price of the buses was $500,000 each and the supplier gave a $200,000 trade discount because of the bulk purchase. The payment was to be made through four half-yearly equal instalments of $530,000 each. The company spent a further $1,200,000 on each bus for renovations. The freight charges for the delivery of the buses amounted to $108,000. During installation, an accident happened and the company paid a repair cost of $20,000. In order to legalise the use of the buses as tour buses, an inspection fee of $90,000 was paid. An annual licence fee of $80,000 was also paid. You are required to prepare a statement to calculate the cost of the buses. (HKAL 2001)
incorrect treatment of expenditure
Incorrect treatment of expenditure
  • Capital expenditure is incorrectly treated as revenue expenditure
  • Revenue expenditure is incorrectly treated as capital expenditure
capital expenditure is treated as revenue expenditure
Capital expenditure is treated as revenue expenditure
  • Value of fixed asset is understated
  • Net profit is understated
revenue expenditure is treated as capital expenditure
Revenue expenditure is treated as capital expenditure
  • Revenue expenditure is treated as capital expenditureValue of fixed asset is overstatedNet profit is overstated
think it over10
Think it over

XYZ Co purchased a new machine at the list price of

$250,000. The supplier offered a trade discount of 10%.

The supplier also provided that if the company settled

the balance within 10 days, a further 10% cash discount

would be given. XYZ Co promptly settled the debt, taking

the advantage of both discounts. In addition, the company

Incurred installation costs of $4,500. The total

transportation and insurance cost incurred for the shipment

of the machine amounted to $3,000 and $6,000 respectively.

$1,200 was paid to the supplier for the maintenance charge

for the current year.

Explain how each of the above figures should be

accounted for by the company. (HKAL 1998)

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