REVIEW QUESTIONS:

24.1

a) what is meant by ‘capital expenditure’ , and ‘revenue expenditure’?

• Capital expenditure are payments for the purchase of assets, which provide benefits to the
business for several accounting period. Example for capital expenditure is purchase of
premises.

• Revenue expenditure are expenditure that provide benefits only during the current
accounting period. They are called revenue expenditure because they are matched against
that revenue earned during the period. Example is purchases of stock for resale.

b)some of the following items should be treated as capital and some as revenue. For each of them
state which classification applies:

i. The purchase of machinery for use in the business-Capital

ii. Carriage paid to bring the machinery in(i) above to the works-Capital

iii. Complete redecoration of the premises at a cost of 1500-Revenue

iv. A quarterly account for heating-Revenue

v. The purchases of a soft drinks vending machine for the canteen with a stock of soft
drink-Revenue

vi. Wages paid by a building contractor to his own workmen for the erection of an office in
the builder’s stockyard-Capital

24.2A Indicate which of the following would be revenue items and which would be capital items
in a wholesales bakery

a) Purchases of a new van-Capital

b) Purchases of replacement engine for existing van- Capital

c) Cost of altering interior of new van to increase carrying capital-Revenue

d) Cost of motor tax and new van-Capital

e) Cost of motor tax and existing van-Revenue

f) Cost of painting business’s name on new van-Capital

g) Repair and maintenance of existing van-Revenue

24.3 State the type of expenditure, capital or revenue, incurred in the following
transactions

a) Break-down van purchased by a garage- Revenue

b) Repairs to fruiterer’s van -Revenue

c) The cost of installing a new machine-Capital

d) Cost of hiring refrigeneration plant in a butcher’s shop- Revenue

e) Twelve dozen sets of cutlery, purchases by a catering firm for a new dining-
room-Capital

f) A motor vehicle bought for re-sale by a motor dealer-Revenue

g) The cost of acquiring pattern rights-Capital

25.2

QUESTIONS

A business had always made a provision for doubtful debts at the rate of 4%
of debtors. On 1 January 20x8 the provision for this, brought forward from the
previous year, was £320. During the year to 31 December 20x8 the
remaining debtors totaled £16,800 and the usual provision for doubtful debts
is to be made.

You are to show:

a) The Bad Debts Account for the year ended 31 December 20x8.

b) The Provision for Doubtful Debts Account for the year.

c) Extract from the Profit and Loss Account for the year.

d) The relevant extract from the Balance Sheet as at 31 December 20x8.

25.3

QUESTIONS
A business started trading on 1 January 20x7. During the two years ended 31
December 20x7 and 20x8 the following debts were written off to the Bad
Debts Account on the dates stated:

31 May 20x7 F Lamb £175

31 October 20x7 AClover £230

31 January 20x8 D Ray £190

30 June 20x8 P Clark £75

31 October 20x8 J Will £339

On 31 December 20x7 there had been a total of debtors remaining of

£52,400. It was decided to make a provision for doubtful debts of £640.

On 31 December 20x8 there had been a total of debtors remaining of

£58,600. It was decided to make a provision for doubtful debts of £710.

You are required to show:

i. The Bad Debts Account and the Provision for Doubtful Debts
Account for each of the two years.

ii. The relevant extracts from the Balance Sheets as at 31

December 20x7 and 20x8.