Question

Classify the following expenditures as capital or revenue expenditure:
(i) Money spent to reduce working expenses.
(ii) Amount spent as lawyer’s fee to defend a suit claiming that the firm’s factory site belonged to the plaintiff’s land.
(iii) Rings and Pistons of an engine were changed at a cost of ` 5,000 to get fuel efficiency.​

Answer 1

Answer:

Explanation:

i) Money spent to reduce working expenses.

☆ Capital Expenditure

ii) Amount spent as lawyer’s fee to defend a suit claiming that the firm’s factory site belonged to the plaintiff’s land.

☆ Revenue Expendeture

iii) Rings and Pistons of an engine were changed at a cost of ` 5,000 to get fuel efficiency.​

☆Capital Expenditure

Answer 2

Answer:

i) It is Revenue Expenditure
ii) It is Revenue Expenditure
iii) It is Capital Expenditure

Explanation:

i) This is Capital Expenditure because In Capital Expenditure is the money which any spends for there improvement, maintenance of fixed assets such as building, machinery, land. Here it is already written that they are spended money for reducing working expenses.

ii) It is Revenue Expenditure because Here the money which is spent as a lawyer's fee is for maintenance of plaintiff's land. So neither any endurable benefit is getting presently or upcoming future will be getting,


iii) It is Capital Expenditure because Again the Money which is Spend is for Improvement of the Fixed Asset. It also helps in Increasing of Profit capacity by reducing the cost.  

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