19E
Question
: Distinguishing capital expenditures from revenue expenditures consider the following expenditures:
a. Purchase price.
b. Ordinary recurring repairs to keep the machinery in good working order.
c. Lubrication before machinery is placed in service.
d. Periodic lubrication after machinery is placed in service.
e. Major overhaul to extend useful life by three years.
f. Sales tax paid on the purchase price.
g. Transportation and insurance while machinery is in transit from seller to buyer.
h. Installation.
i. Training of personnel for initial operation of the machinery. Classify each of the expenditures as a capital expenditure or revenue expenditure
Step-by-Step Solution
VerifiedA company can incur Capital Expenditure for long-term purposes and benefits.
Revenue Expenditure is the expenditure related to the day-to-day activities of business operations.
Capital Expenditure: All the funds utilized by the company for the acquisition and maintenance of the fixed assets are known as capital expenditure.
Revenue Expenditure: The expenses incurred to generate revenue or for managing the operating activities of the company are known as revenue expenditures.
Particular | Revenue/Capital expenditure |
a. Purchase price | Capital expenditure |
b. Ordinary recurring repairs to keep the machinery in good working order. | Revenue expenditure |
c. Lubrication before machinery is placed in service | Capital expenditure |
d. Periodic lubrication after machinery is placed in service | Revenue expenditure |
e. Major overhaul to extend useful life by three years | Capital expenditure |
f. Sales tax paid on the purchase price | Capital expenditure |
g. Transportation and insurance while machinery is in transit from seller to buyer | Capital expenditure |
h. Installation | Capital expenditure |
i. Training of personnel for initial operation of the machinery. Classify each of the expenditures as a capital expenditure or revenue expenditure | Capital expenditure |