Page 3 :
(3) Paid Audit Fees { 10,000., (4) Paid fees 6,000 to the Association for 3 years., Capital And Revenue : Expenditure and Receipts, llustration(11:, Explain, with reasons whether the following expenses are capital or revenue :, 1 Purchase of old machinery for cash ? 1,00,000., 121, o Interest paid ? 15,000 on Bank Overdraft., E Provided depreciation ? 20,000 on Furniture., 6) Paid Insurance premium 1,000., (April 2004, adapted), Solution :, /1) Capital expenditure; The benefit from machinery purchased will be available for many years., 12) Revenue expenditure; The expenditure is incurred for normal running of the business., (3) Revenue expenditure; It is a normal business expenditure., (4) Revenue expenditure; As no new asset is created, expenditure is fully written off., (5) Revenue expenditure; It is a normal expenditure for using the furniture., (6) Revenue expenditure; It is a normal business expenditure., Illustration 12:, Classify with reason the following into Capital or revenue :, (1) Legal expenses { 3,000 in connection with collection of debts., (2) Premium 25,000 on issue of new shares., (3) Dividend and Interest 10,000 on investments., (4) Sales-tax collected from purchaser of goods., (5) Cost of carrying out an experiment to modify a product., (6) Repairs to keep the machinery in good working condition., (April 2004, adapted), ven (), ud vot, (7) Cost of a lathe machine 50,000., (Oct. 2004, adapted), Solution :, (1) Revenue expenditure; It is incurred in normal course of business to collect debts., (2) Capital Receipt; Premium is received on issue on new shares., (3) Revenue Receipt; It is received in ordinary course of business on investments., (4) Capital Receipt (Liability) ; The same has to be paid to Government., (5) Revenue expenditure; unless the expenditure involves acquisition of any tangible fixed asset, (e.g. equipments) or an intangible asset (e.g. patent or know-how)., (6) Revenue expenditure; It is incurred to maintain the machinery in good working condition not to, improve its capacity., (7) Capital expenditure; Purchase of a lathe machine would increase revenue earning capacity., Illustration 13 :, veR (a), erit ni aflueer, lefio63 (), State with reasons whether following items are Capital or Revenue. Also given Journal Entry., (1) Received 2 lakhs on issue of Equity Share Capital., (2) Paid ? 5,000 towards excise duty on goods manufactured., (3) Purchased 4% Government Securities of 40,000 at 39,000., (4) Paid 2,000 for erection charges of new machinery., S) Annual subscription paid 2,000 for trade association., (6) Freight paid 5,000., 1) Purchased motor car for 3 lakhs., 0aa palkoflot orberitenw scmeted, zinictao soi ble (April 2005, adapted), Scanned By Scanner Go
Page 4 :
Scanned By Scanner Go, * 400 on repairing it, so as to bring it in working condition. Both together 1,600 creates an, assets. Hence it is a Capital Expenditure., Illustration 15 :, CO tmega 0002, State with reasons the nature of following Expenses/Receipts :-, (a) Sold 4% Government Securities (Investment) for 1,40,000., (b) Preliminary Expenses paid ? 42,000., (c) Carriage outward paid ? 40,000., (d) Import duty paid on purchase of Computer Equipment 85,000 to be used in the office., (e) Received 7 5,00,000 on the Issue of 5% Debentures., benuoni aseneqxb, teged, booni C00,a S 2eansaxe apgl, ntolis bna noUBalggs 1ot bisg c00 00,ts, (), noitulo?, (1) Legal expenses 6,000 paid in connection with Purchases of Land. uibnegxa ouneveA (), (9) Repairing charges { 15,000 paid for keeping the machinery in working condition. laliqe (S), (Mar. 06, adapted), Solution :, n in Conital Receipt as the
Page 5 :
Scanned By Scnner Go, vuiuiny. Il is capitalised as per 2$ 10, (8) It is a Capital Expenditure. It increases cost of new machinery. It is capitalised as per AS 10, Illustration 17;, State with reasons whether the following expenses are Capital or Revenue :, (1) Legal expenses incurred in an action for infringement of trade marks ? 5,000., (2) 7 25,000 spent on air conditioning the office of the Managing Director,, (3) 7 7,000 spent on registration of design., (4) Legal expenses incurred in an income tax appeal 2,000., (5) Legal expenses { 5,000 incurred in connection with the purchase of business premises., (6) 7 1,00,000 paid for application and allotment of a plot of land., (7) Legal expenses { 8,000 incurred in defending a suit for breach of contract to supply of goods., (April 2008, adapted), Solution :
