Exam code: 4AC1
Identify, indicating with a tick (✓), whether each item represents capital expenditure or revenue expenditure when purchasing a motor vehicle for use in the business.
Capital expenditure | Revenue expenditure | |
|---|---|---|
Cost of motor vehicle | ||
Delivery cost | ||
Extended warranty | ||
Fuel | ||
Insurance |
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Identify, indicating with a tick (✓), the effect on gross profit if the purchase of the new vehicle was treated as revenue expenditure.
Overstated | |
Understated | |
No effect |
Explain why the purchase of the new motor vehicle was treated as capital expenditure.
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Identify which of the following represents capital expenditure.
Additional capital invested by the owner
Drawings by the owner
Expenditure on the purchase of non‑current assets
Expenditure on the maintenance of non‑current assets
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Define the following terms, giving an example of each.
Term | Definition | Example |
|---|---|---|
Capital expenditure | ||
Revenue expenditure |
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Identify the effect on profits if revenue expenditure is treated as capital expenditure.
Gross profit overstated
Gross profit understated
Profit for the year overstated
Profit for the year understated
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State one difference between capital expenditure and revenue expenditure.
Identify, indicating with a tick (✓), how each would be classified when a new motor vehicle is purchased.
Capital expenditure | Revenue expenditure | |
|---|---|---|
Delivery cost | ||
Motor insurance |
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Identify, indicating with a tick (✓), how each would be classified.
Revenue expenditure | Capital expenditure | |
|---|---|---|
Machine delivery | ||
Machine installation | ||
Machine operatives’ wages |
Explain what distinguishes revenue expenditure from capital expenditure.
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State two differences between capital expenditure and revenue expenditure.
Difference 1 ................................
Difference 2 ................................
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What is the effect if capital expenditure is treated as revenue expenditure?
Gross profit overstated
Gross profit understated
Profit for the year overstated
Profit for the year understated
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Complete the table, indicating with a tick (✓) how each item would be classified when purchasing hardware.
Item | Capital expenditure | Revenue expenditure |
|---|---|---|
Installation cost | ||
Delivery cost | ||
Consumables |
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A trader received a bank statement on 31 March 2020 showing a credit balance of $791. On the same date the cash book showed a debit balance of $1210.
The following had not been entered in the cash book:
a standing order for insurance, $345
bank interest received, $15
a dishonoured cheque from Jones, $265
Update the cash book showing the adjusted balance at 31 March 2020.
Cash book – bank column
Date | Details | $ | Date | Details | $ |
|---|---|---|---|---|---|
The following had not yet been processed by the bank:
unpresented cheques, $656
outstanding lodgements, $480
Prepare a bank reconciliation statement at 31 March 2020.
Bank reconciliation statement at 31 March 2020
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Complete the table indicating with a tick (✓) whether each item is capital expenditure or revenue expenditure.
Capital expenditure | Revenue expenditure | |
|---|---|---|
Delivery costs of a new motor vehicle | ||
Motor vehicle insurance | ||
Installation costs of new machinery | ||
Legal costs on purchase of business premises | ||
Bank interest on loan to purchase business premises |
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Which transaction is capital expenditure?
Disposal of a computer
Installation of air conditioning
Repainting of the building
Repairs to air conditioning
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Explain one difference between capital expenditure and revenue expenditure.
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