- 6 Marks
Question
State which of the following items should be classified as capital expenditure for the purpose of preparing the Statement of Financial Position:
i. The purchase of leasehold premises
ii. The annual depreciation of leasehold premises
iii. Solicitor’s fees in connection with the purchase of leasehold premises
iv. The costs of adding extra-storage capacity to a mainframe computer used by the business
v. Computer repairs and maintenance costs
vi. Profit on the sale of an office building
vii. Revenue from sales via credit cards
viii. The cost of new machinery procured
ix. Custom duty charged on machinery procured and imported into the country
x. The carriage costs of transporting new machinery from the supplier’s factory to the buyer’s premises
xi. The wages of the machine operators
xii. Cost of cleaning of the machine room
xiii. Cost of oil and other materials purchased for the repairs of machine
Answer
The following items should be classified as capital expenditure:
i. The purchase of leasehold premises – Capital Expenditure
iii. Solicitor’s fees in connection with the purchase of leasehold premises – Capital Expenditure
iv. The costs of adding extra-storage capacity to a mainframe computer used by the business – Capital Expenditure
viii. The cost of new machinery procured – Capital Expenditure
ix. Custom duty charged on machinery procured and imported into the country – Capital Expenditure
x. The carriage costs of transporting new machinery from the supplier’s factory to the buyer’s premises – Capital Expenditure
Items ii, v, vi, vii, xi, xii, and xiii would typically be classified as revenue expenditure and not capital expenditure.
- Tags: Capital Expenditure, Financial Statements, Revenue Expenditure
- Level: Level 1, Level 3
- Topic: Elements of Financial Statements
- Series: NOV 2014
- Uploader: Dotse