II. Very Short Answer Questions
Question 2.
What is capital expenditure?
Answer:
It is an expenditure incurred during an accounting period, the benefits of which will be available for more than one accounting period. It includes any expenditure resulting in the acquisition of any fixed asset or contributes to the revenue earning capacity of the business. It is non-recurring in nature.
Question 3.
What is capital profit?
Answer:
Capital profit is the profit which arises not from the normal course of the business. Profit on sale of fixed asset is an example for capital profit.
Question 4.
Write a short note on revenue receipt.
Answer:
Receipts which are obtained in the normal course of business are called revenue receipts. It is recurring in nature. The amount received is generally small.
III. Short Answer Questions
Question 2.
Distinguish between capital receipt and revenue receipt.
Answer:
| S. No. | Characteristics | Capital Receipt | Revenue Receipt |
| 1 | Nature | Non-recurring in nature. | Recurring in nature. |
| 2 | Size | Amount is generally substantial. | Amount is generally smaller. |
| 3 | Distribution | These amounts are not available for distribution as profits. | The excess’of revenue receipts over the revenue expenses can be used for distribution as profits. |
IV. Exercises
Question 1.
State whether the following expenditures are capital, revenue or deferred revenue.
(a) Advertising expenditure, the benefits of which will last for three years.
(b) Registration fees paid at the time of registration of a building.
(c) Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable.
Answer:
(a) Deferred revenue expenditure
(b) Capital expenditure
(c) Capital expenditure
Question 2.
Classify the following items into capital and revenue.
(a) Registration expenses incurred for the purchase of land.
(b) Repairing charges paid for remodelling the old building purchased.
(c) Carriage paid on goods purchased.
(d) Legal expenses paid for raising of loans.
Answer:
(a) Capital expenditure
(b) Capital expenditure
(c) Revenue expenditure
(d) Capital expenditure
Question 3.
State whether they are capital and revenue.
(a) Construction of building ₹ 10,00,000.
(b) Repairs to furniture ₹ 50,000.
(c) White-washing the building ₹ 80,000.
(d) Pulling down the old building and rebuilding ₹ 4,00,000.
Answer:
(a) Capital expenditure
(b) Revenue expenditure
(c) Revenue expenditure
(d) Capital expenditure
Question 4.
Classify the following items into capital and revenue.
(a) ₹ 50,000 spent for railway siding.
(b) Loss on sale of old furniture.
(c) Carriage paid on goods sold.
Answer:
(a) Capital expenditure
(b) Capital loss
(c) Revenue expenditure
Question 5.
State whether the following are capital, revenue and deferred revenue.
(a) Legal fees paid to the lawyer for acquiring a land ₹ 20,000.
(b) Heavy advertising cost of ₹ 12,00,000 spent on introducing a new product.
(c) Renewal of factory licence ₹ 12,000.
(d) A sum of ₹ 4,000 was spent on painting the factory.
Answer:
(a) Capital expenditure
(b) Deferred revenue expenditure
(c) Revenue expenditure
(d) Revenue expenditure
Question 6.
Classify the following receipts into capital and revenue.
(a) Sale proceeds of goods ₹ 75,000.
(b) Loan borrowed from bank ₹ 2,50,000.
(c) Sale of investment ₹ 1,20,000.
(d) Commission received ₹ 30,000.
(e) ₹ 1,400 wages paid in connection with the erection of new machinery.
Answer:
(a) Revenue receipts
(b) Capital receipts
(c) Capital receipts
(d) Revenue receipts
(e) Capital expenditure
Question 7.
Identify the following items into capital or revenue.
(a) Audit fees paid ₹ 10,000.
(b) Labour welfare expenses ₹ 5,000.
(c) ₹ 2,000 paid for servicing the company vehicle.
(d) Repair to furniture purchased second hand ₹ 3,000.
(e) Rent paid for the factory ₹ 12,000.
Answer:
(a) Revenue expenditure
(b) Revenue expenditure
(c) Revenue expenditure
(d) Capital expenditure
(e) Revenue expenditure