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Topic to be tested:

  • Importance of  distinction between capital and revenue expenditure

Learning Objectives:

  • To understand the concepts of capital and revenue expenditure and their accounting treatment in financial statement

DISCUSSION SCENARIO:


During the month of October 2015, a limited company paid following expenditures through its bank account:

1. Purchase of machinery Rs. 10,000,000

2. Rent of the office building Rs. 120,000

Mr. Aslam - a newly hired junior accountant of the company recorded the above expenditures in profit and loss account as he was unaware about the difference between capital and revenue expenditures. This adversely affected the company’s profitability due to overcharging of certain expenditures.

Answer the following:

a)  Identify the nature of above expenditures as to capital or revenue?                     

b)  Suggest a correct accounting treatment of the above expenditures in the financial statements       

c)  Why is such distinction necessary in preparation of financial statements?                     

Note: To avoid negative marking complete your comment within 100 words.

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Replies to This Discussion

Solution..................???

solution....?

Salam Guys,

Koi Idea hi dede is GDB ka...solution khud hi karle gain inshallah....

Dosto handout mein page 113 pharlo GDB hojaye ga... its easy just concentrate you will get your answers.

The general rule for distinguishing between capital and revenue expenditure is as follows:
· The expense whose benefit lasts for a period longer than an accounting period is called capital
expenditure, and
· The expense whose benefit is obtained within an accounting period is termed as a revenue
expense.

which chapter ?

Please Discuss here about this GDB.Thanks

Our main purpose here discussion not just Solution

We are here with you hands in hands to facilitate your learning and do not appreciate the idea of copying or replicating solutions.

17 lec ma hai

mny gdb k 2 points keay h but mjy ni pta k theek h k ni

Dear Students Don’t wait for solution post your problems here and discuss ... after discussion a perfect solution will come in a result. So, Start it now, replies here give your comments according to your knowledge and understandings....

b)  Suggest a correct accounting treatment of the above expenditures in the financial statements:

Machinery a/c (Dr.)

Bank A/c (Cr.)

Is this treatment correct?? 

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