FINANCIAL ACCOUNTING FYBCOM (FM)

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CAPITAL REVENUE AND DEFERRED REVENUE EXPENDITURE & RECEIPTS

1. Following sums have been spent by Zee ltd. during the year in respect of plant and machinery.
Discuss whether the same as capital or revenue.
1. Rs 20000 for repairs necessitated by negligence of worker.
2. Rs. 5000 for replacement of worn out parts.
3. Rs. 10000 for setting a new device in the machine, which would increase production by 50%.
4. Rs. 2000 paid to technical consultants to advise the company as to how machines can be
maintained on normal running condition.
5. Rs. 1000 paid to a lawyer for filing suit against a worker who was caught red handed while
damaging the machine intentionally.

2. M/s Dadaji started a public auditorium. During the first year of their business, payments were
made for the following items:
1. Purchase of 1000 second hand chairs at Rs. 50 each. The firm spent further Rs. 10000 on
renovating and repairing them. The chairs were fitted by their employees, total wages being paid Rs.
3500.
2. It became necessary to get some of these chairs repaired within 3 months. The total cost on
repairs was for materials purchases Rs. 3000 and wages paid Rs. 5000.
3. The auditorium was inaugurated at an expense of Rs. 5000. Free passes were distributed in the
first month to popularize the auditorium. The value of such free passes was Rs. 40000.
4. Total municipal and water taxes paid during the year were Rs. 18000. This included Rs. 12000
being the taxes for construction period.
5. For obtaining license of the auditorium from police authorities, the following sums were spent
a) Application fees Rs. 5000
b) Annual fees Rs. 500
c) Fine for applying late Rs. 100
Discuss the treatment of these expenses in the final accounts of the auditorium for the year.

3. State how the following items shall be treated while preparing final accounts:
1. Wagers for extension of building debited to wages a/c Rs. 5000
2. Legal charges for the purchase of plot of land credited to legal charges Rs. 5,500.
3. Carriage on machinery Rs. 10000 debited to carriage inward a/c.
4. Replacement of an important part of a machine costing Rs. 50,000 debited machinery account.
5. Sale proceeds of an old machine of Rs. 4000 credited to sales a/c. Book Value of the machine
sold was Rs. 5000.
To what extent would the profit for the year be affected?

4. State giving reasons, whether you will consider the following items as Capital, Revenue or
deferred Revenue:
1. Cost incurred in replacing worn out but costly spare parts of a machine.
2. Cost of acquisition of Copy rights
3. Cost of designing a new product which ultimately could not come up for commercial productions.
4. Heavy current repairs to the roof of the factory building.
5. Cost of alteration to a cinema theatre in accordance to municipal law.
6. Replacement of a wooden roof with a guarantee of 20 years.
7. Replacement of worn out tire of a van.
8. Repainting of a building.
9. Replacement of wooden platform of machinery with a concrete one.
10. Replacement of an open truck body with a closed refrigerated body.
11. Replacement of petrol engine of the car with a diesel
FINANCIAL ACCOUNTING FYBCOM (FM)
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12. Planting of rose bushes outside the managing directors office.
13. Amount received from insurance company for loss of stock.
14. Loss due to change in exchange rate for purchase of materials.
15. Additions to factory building.
16. Repairs to plant.
17. Heavy advertising expenses.
18. Renewal of factory licenses.
19. Premium given for lease.
20. Commission on issue of debentures.
21. Cost of pulling down an old factory building to construct a new one.
22. Amount received as claim from insurance company, on destroying one machine.
23. Profit on sale of investments.
24. Rs. 10000 spent on renovation and overhauling machinery which resulted in extension of the life
of the plant.
25. Carriage inwards and freight for bringing the furniture from the dealer.
26. Cost of research of marketing a new product.
27. A sum of Rs. 2500 previously written off as bad debts now recovered in this year.
28. Old items of machinery disposed off as loss.
29. Stock transferred from one factory to another one where there is shortage.
30. Travelling expenses of a Director for going to Germany to purchase a new machine.