Question

Mehra & Sons purchased a second-hand light motor Vehicle at a cost of Rs 2 lacs. Additionally, various accessories costing Rs50000 were also purchased along with the Vehicles which are required to be replaced on a yearly basis. Mr. Mehra wants to write off the overall outflow in Income statement Discuss, whether he is correct or not? Discuss the need to differentiate between the capital and revenue items? How these items are to be treated in the financials of the company? Give reasons supporting the same

Answer 1

Answer:

Mehra & Sons purchased a second-hand light motor Vehicle at a cost of Rs 2 lacs. Additionally, various accessories costing Rs50000 were also

Answer 2

Explanation:

No, Mr Mehra is not adapting the right accounting principle. Before writting off any equipment, it is essential to differentate between capital and revenue expenditure

In terms of financial accounting, a capital expenditure is written off after a given life cycle defined initially whereas in case of revenue expenditure it is usually calculated on annual basis.

The car will come under capital expenditure while the accessories will be in revenue expenditure