Question Tag: Revenue Expenditure

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  • 1 Marks

FA – Nov 2011 – L1 – SA – Q6 – Accounting Concepts

This question tests the conditions under which an expense is classified as revenue expenditure.

An expense will be classified as revenue expenditure if it
A. Contributes to the operating income of the business
B. Adds to or reduces the capital of the business
C. Necessitates the injection of additional capital
D. Adds to or improves the value of fixed assets
E. Necessitates calling a general meeting for shareholders’ approval

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  • 20 Marks

FA – Nov 2020 – L1 – SB – Q5 – Elements of Financial Statements

Classify expenditure as capital or revenue and state recognition in financial statements.

Given below are items of revenue and capital expenditure:

  1. A number of new cars recently cleared by a motor car dealing company.
  2. Two new motor boats acquired by a ferry service agency.
  3. Vacant houses owned by an estate developing company, for which negotiations are ongoing for sale to prospective landlords.
  4. New buildings acquired for the purpose of holding items of plant and machinery belonging to a detergent manufacturing company.
  5. Cost of acquiring a leasehold property for office use.
  6. Granites purchased by an engineering contractor for use at a construction site.
  7. Cost of rehabilitating a dilapidated housing unit owned by an estate developer.
  8. Pre-production testing cost.

Required:

a. Using the tabular format below, classify the above transactions into capital or revenue expenditure. (8 Marks)

S/N | Capital Expenditure | Revenue Expenditure

b. State whether each of the items above will be recognized in the statement of profit or loss or in the statement of financial position. (8 Marks)

c. In respect of the information in (a) above, outline the details of information of the capital expenditure that should be included in the property, plant, and equipment (PPE) register. (4 Marks)

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  • 1 Marks

FA – Nov 2012 – L1 – SA – Q24 – Accruals and Prepayments

Identifying revenue expenditure that provides benefit beyond the accounting period.

An expenditure of revenue nature that will give benefit for a period longer than the accounting period in which it was incurred is known as:

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  • 1 Marks

BMF – May 2018 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets

Distinguishing between revenue and capital expenditure.

Expenditure that does not create a long-term asset is called:
A. Capital expenditure
B. Investment expenditure
C. Revenue expenditure
D. Sundry expenditure
E. Capital budgeting expenditure

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  • 6 Marks

FA – Nov 2014 – L1 – SB – Q4a – Elements of Financial Statements

Classifying items as capital expenditure for the Statement of Financial Position.

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

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  • 14 Marks

FA – Nov 2019 – L1 – SB – Q2c – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Classify expenditure for plant into capital and revenue.

c. Ahmed Ventures Ltd acquired an item of plant from Judexco Machine Ltd to facilitate its operations.

The schedule of expenditure for the plant is given below:

Expenditure Item N’000 %
Purchase price 480,000 100%
Trade discount applicable to the purchase price 8%
Early settlement discount on the payable amount 5%
Freight charges 25,000
Pre-production testing cost 15,000
One-year maintenance contract 12,000
Staff cost in relation to the use of the machine 8,000
Electrical installation cost 19,000
Concrete reinforcement 9,000
Cost of correcting installation error 17,000
Dismantling and restoration cost 20,000
Staff training in the use of the plant 14,000

Required:
Using the format provided below, classify the above plant costs into capital and revenue expenditure respectively. (14 Marks)

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  • 20 Marks

FA – May 2016 – L1 – SB – Q6 – Elements of Financial Statements

Classify various expenditures as revenue or capital and their impact on financial statements and non-current asset register.

Given below are items of “Revenue” and “Capital” expenditure:

(i) A number of new cars that had recently been cleared by a motor car dealing company.

(ii) Two new motor boats acquired by a ferry service agency.

(iii) Vacant houses owned by an estate developing company in respect of which negotiations are ongoing for assistance for their sale to prospective landlords.

(iv) New buildings acquired for the purpose of holding the items of plant and machinery belonging to a detergent manufacturing company.

(v) Cost of acquiring a leasehold property for office use.

(vi) Granites purchased by an engineering contractor for use at a construction site.

(vii) Cost of rehabilitating a dilapidated housing unit owned by an estate developer.

(viii) Repairs to plant and machinery in a manufacturing company.

Required:

a. For each of the above, state whether it is a “Revenue” or “Capital” expenditure. (4 Marks)

b. State how each will be recognised in the statement of profit or loss and the statement of financial position as the case may be. (12 Marks)

c. State how the non-current assets register will be affected by any of the transactions. (4 Marks)

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  • 5 Marks

PT – Mar 2024 – L2 – Q4b – Income Tax Liabilities

State the differences between capital expenditure and revenue expenditure with relevant examples.

With relevant examples, state the differences between capital expenditure and revenue expenditure. (5 marks)

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  • 20 Marks

FA – Mar 2023 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Distinguishes between capital and revenue expenditure and calculates financial ratios to assess the performance of a business.

a) Distinguish between capital expenditure and revenue expenditure. (5 marks)

b) Banky is the owner of a business supplying goods to other traders. He has just received the financial statement for his business for the year ended 31 December 2022 from his accountant. Below are the summarized financial statements:

Required:

i) Calculate for Banky each of the following ratios for the year ended 31 December 2022 (where appropriate, calculations should be approximated to two decimal places):

  • Net profit margin. (2 marks)
  • Return on capital employed (using the closing year-end value for capital employed) (2 marks)
  • Current ratio. (2 marks)
  • Liquid (acid test) ratio. (2 marks)
  • Rate of inventory turnover. (2 marks)

ii) Based on the ratios calculated in i) above, and all other information provided, assess the performance (profitability) of Banky’s business. (5 marks)

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  • 20 Marks

FA – Nov 2015 – L1 – Q7 – Capital structure and finance costs | Preparation of financial statements of a sole trader

Differentiate between capital and revenue expenditure and prepare financial statements for Danfo Enterprise.

a) Distinguish between Capital Expenditure and Revenue Expenditure. (5 marks)

(b) The following Trial Balance was extracted from the books of Danfo Enterprise, a second-hand bags dealer, as at 31st December 2014:

Description DR (GH¢) CR (GH¢)
Stock in Trade 120,000
Vehicle (Cost) 150,000
Trade Receivables 80,000
Accumulated Depreciation: Vehicle 30,000
Accumulated Depreciation: Furniture & Fittings 10,120
Trade Payables 100,000
Drawings 120,000
General Expenses 65,000
Provision for Doubtful Debts 2,500
Rate & Rent 14,000
Insurance 5,000
Bad Debt 7,000
Discount Received 25,150
Discount Allowed 15,160
Bank Balance 165,240
Wages & Salaries 250,000
Sundry Expenses 6,150
Vehicle Running Expenses 15,650
Furniture & Fittings 50,600
Repairs to the Shop 6,500
Purchases 650,120
Sales 1,079,130
Capital 473,520
Total 1,720,420 1,720,420

Additional Information:
i. Provision for doubtful debts is to be reduced by 10%.
ii. Rate and Rent has been paid in advance by two (2) months. Note that Danfo Enterprise pays GH¢1,000 each month.
iii. Stock in trade as at 31st December, 2014 GH¢80,150.
iv. A bill of GH¢6,150 for vehicle running was outstanding as at 31st December, 2014.
v. The Enterprise provides depreciation as follows:

  • Vehicle: 20% per annum on straight line basis.
  • Furniture and Fittings: 20% per annum on straight line basis.

You are required to:
i. Prepare Income statement for the year ending 31st December 2014. (8 marks)
ii. Prepare Statement of Financial Position as at 31st December 2014. (7 marks)

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  • 1 Marks

FA – Nov 2011 – L1 – SA – Q6 – Accounting Concepts

This question tests the conditions under which an expense is classified as revenue expenditure.

An expense will be classified as revenue expenditure if it
A. Contributes to the operating income of the business
B. Adds to or reduces the capital of the business
C. Necessitates the injection of additional capital
D. Adds to or improves the value of fixed assets
E. Necessitates calling a general meeting for shareholders’ approval

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  • 20 Marks

FA – Nov 2020 – L1 – SB – Q5 – Elements of Financial Statements

Classify expenditure as capital or revenue and state recognition in financial statements.

Given below are items of revenue and capital expenditure:

  1. A number of new cars recently cleared by a motor car dealing company.
  2. Two new motor boats acquired by a ferry service agency.
  3. Vacant houses owned by an estate developing company, for which negotiations are ongoing for sale to prospective landlords.
  4. New buildings acquired for the purpose of holding items of plant and machinery belonging to a detergent manufacturing company.
  5. Cost of acquiring a leasehold property for office use.
  6. Granites purchased by an engineering contractor for use at a construction site.
  7. Cost of rehabilitating a dilapidated housing unit owned by an estate developer.
  8. Pre-production testing cost.

Required:

a. Using the tabular format below, classify the above transactions into capital or revenue expenditure. (8 Marks)

S/N | Capital Expenditure | Revenue Expenditure

b. State whether each of the items above will be recognized in the statement of profit or loss or in the statement of financial position. (8 Marks)

c. In respect of the information in (a) above, outline the details of information of the capital expenditure that should be included in the property, plant, and equipment (PPE) register. (4 Marks)

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  • 1 Marks

FA – Nov 2012 – L1 – SA – Q24 – Accruals and Prepayments

Identifying revenue expenditure that provides benefit beyond the accounting period.

An expenditure of revenue nature that will give benefit for a period longer than the accounting period in which it was incurred is known as:

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  • 1 Marks

BMF – May 2018 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets

Distinguishing between revenue and capital expenditure.

Expenditure that does not create a long-term asset is called:
A. Capital expenditure
B. Investment expenditure
C. Revenue expenditure
D. Sundry expenditure
E. Capital budgeting expenditure

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  • 6 Marks

FA – Nov 2014 – L1 – SB – Q4a – Elements of Financial Statements

Classifying items as capital expenditure for the Statement of Financial Position.

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

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  • 14 Marks

FA – Nov 2019 – L1 – SB – Q2c – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Classify expenditure for plant into capital and revenue.

c. Ahmed Ventures Ltd acquired an item of plant from Judexco Machine Ltd to facilitate its operations.

The schedule of expenditure for the plant is given below:

Expenditure Item N’000 %
Purchase price 480,000 100%
Trade discount applicable to the purchase price 8%
Early settlement discount on the payable amount 5%
Freight charges 25,000
Pre-production testing cost 15,000
One-year maintenance contract 12,000
Staff cost in relation to the use of the machine 8,000
Electrical installation cost 19,000
Concrete reinforcement 9,000
Cost of correcting installation error 17,000
Dismantling and restoration cost 20,000
Staff training in the use of the plant 14,000

Required:
Using the format provided below, classify the above plant costs into capital and revenue expenditure respectively. (14 Marks)

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  • 20 Marks

FA – May 2016 – L1 – SB – Q6 – Elements of Financial Statements

Classify various expenditures as revenue or capital and their impact on financial statements and non-current asset register.

Given below are items of “Revenue” and “Capital” expenditure:

(i) A number of new cars that had recently been cleared by a motor car dealing company.

(ii) Two new motor boats acquired by a ferry service agency.

(iii) Vacant houses owned by an estate developing company in respect of which negotiations are ongoing for assistance for their sale to prospective landlords.

(iv) New buildings acquired for the purpose of holding the items of plant and machinery belonging to a detergent manufacturing company.

(v) Cost of acquiring a leasehold property for office use.

(vi) Granites purchased by an engineering contractor for use at a construction site.

(vii) Cost of rehabilitating a dilapidated housing unit owned by an estate developer.

(viii) Repairs to plant and machinery in a manufacturing company.

Required:

a. For each of the above, state whether it is a “Revenue” or “Capital” expenditure. (4 Marks)

b. State how each will be recognised in the statement of profit or loss and the statement of financial position as the case may be. (12 Marks)

c. State how the non-current assets register will be affected by any of the transactions. (4 Marks)

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  • 5 Marks

PT – Mar 2024 – L2 – Q4b – Income Tax Liabilities

State the differences between capital expenditure and revenue expenditure with relevant examples.

With relevant examples, state the differences between capital expenditure and revenue expenditure. (5 marks)

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  • 20 Marks

FA – Mar 2023 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Distinguishes between capital and revenue expenditure and calculates financial ratios to assess the performance of a business.

a) Distinguish between capital expenditure and revenue expenditure. (5 marks)

b) Banky is the owner of a business supplying goods to other traders. He has just received the financial statement for his business for the year ended 31 December 2022 from his accountant. Below are the summarized financial statements:

Required:

i) Calculate for Banky each of the following ratios for the year ended 31 December 2022 (where appropriate, calculations should be approximated to two decimal places):

  • Net profit margin. (2 marks)
  • Return on capital employed (using the closing year-end value for capital employed) (2 marks)
  • Current ratio. (2 marks)
  • Liquid (acid test) ratio. (2 marks)
  • Rate of inventory turnover. (2 marks)

ii) Based on the ratios calculated in i) above, and all other information provided, assess the performance (profitability) of Banky’s business. (5 marks)

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  • 20 Marks

FA – Nov 2015 – L1 – Q7 – Capital structure and finance costs | Preparation of financial statements of a sole trader

Differentiate between capital and revenue expenditure and prepare financial statements for Danfo Enterprise.

a) Distinguish between Capital Expenditure and Revenue Expenditure. (5 marks)

(b) The following Trial Balance was extracted from the books of Danfo Enterprise, a second-hand bags dealer, as at 31st December 2014:

Description DR (GH¢) CR (GH¢)
Stock in Trade 120,000
Vehicle (Cost) 150,000
Trade Receivables 80,000
Accumulated Depreciation: Vehicle 30,000
Accumulated Depreciation: Furniture & Fittings 10,120
Trade Payables 100,000
Drawings 120,000
General Expenses 65,000
Provision for Doubtful Debts 2,500
Rate & Rent 14,000
Insurance 5,000
Bad Debt 7,000
Discount Received 25,150
Discount Allowed 15,160
Bank Balance 165,240
Wages & Salaries 250,000
Sundry Expenses 6,150
Vehicle Running Expenses 15,650
Furniture & Fittings 50,600
Repairs to the Shop 6,500
Purchases 650,120
Sales 1,079,130
Capital 473,520
Total 1,720,420 1,720,420

Additional Information:
i. Provision for doubtful debts is to be reduced by 10%.
ii. Rate and Rent has been paid in advance by two (2) months. Note that Danfo Enterprise pays GH¢1,000 each month.
iii. Stock in trade as at 31st December, 2014 GH¢80,150.
iv. A bill of GH¢6,150 for vehicle running was outstanding as at 31st December, 2014.
v. The Enterprise provides depreciation as follows:

  • Vehicle: 20% per annum on straight line basis.
  • Furniture and Fittings: 20% per annum on straight line basis.

You are required to:
i. Prepare Income statement for the year ending 31st December 2014. (8 marks)
ii. Prepare Statement of Financial Position as at 31st December 2014. (7 marks)

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