Capital And Revenue Expenditure Exam: Quiz!

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Capital And Revenue Expenditure Exam: Quiz! - Quiz

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Questions and Answers
  • 1. 

    Which of the following is of capital nature?

    • A.

      Purchase of a goods

    • B.

      Cost of repair

    • C.

      Wages paid for installation of machinery

    • D.

      Rent of a factory

    Correct Answer
    C. Wages paid for installation of machinery
    Explanation
    Wages paid for the installation of machinery is of capital nature because it is directly related to the acquisition and installation of a long-term asset, which is the machinery. This expense is considered a capital expenditure because it enhances the value or extends the useful life of the machinery. In contrast, the purchase of goods, cost of repair, and rent of a factory are considered revenue expenditures as they are incurred in the normal course of business operations and do not result in the acquisition or improvement of long-term assets.

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  • 2. 

    A second-hand car is purchased for Rs. 10,000, the amount of Rs. 1,000 is spent on its repairs, Rs. 500 is incurred to get the car registered in the owner's name and Rs. 1,200 is paid as dealer's commission. The amount debited to the card account will be:

    • A.

      Rs.10,000

    • B.

      Rs.10,500

    • C.

      Rs.11,500

    • D.

      Rs.12,700

    Correct Answer
    D. Rs.12,700
    Explanation
    The amount debited to the card account will be Rs. 12,700. This is because the initial purchase price of the car is Rs. 10,000. Additional expenses such as repairs (Rs. 1,000), registration (Rs. 500), and dealer's commission (Rs. 1,200) are also incurred. Therefore, the total amount debited to the card account is the sum of these expenses, which is Rs. 12,700.

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  • 3. 

    If the repair cost is Rs. 25,000, whitewash expenses are Rs. 5,000, cost of extension of the building is Rs. 2,50,000 and of improvement in electrical wiring system is Rs. 19,000; the amount to be expensed is:

    • A.

      Rs.2,99,000

    • B.

      Rs.44,000

    • C.

      Rs.30,000

    • D.

      Rs.49,000

    Correct Answer
    C. Rs.30,000
    Explanation
    To calculate the amount to be expensed, you'll need to add up the repair cost and the whitewash expenses. The extension of the building and the improvement in the electrical wiring system are considered capital expenses, so they won't be expensed immediately.

    Expensed amount = Repair cost + Whitewash expenses
    Expensed amount = Rs. 25,000 + Rs. 5,000
    Expensed amount = Rs. 30,000

    So, the amount to be expensed is Rs. 30,000.

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  • 4. 

    Rs. 200 paid as wages for erecting a machine should be debited to

    • A.

      Repair account

    • B.

      Machine account

    • C.

      Capital account

    • D.

      Furniture account

    Correct Answer
    B. Machine account
    Explanation
    The Rs. 200 paid as wages for erecting a machine should be debited to the Machine account because it is a direct cost associated with the acquisition and installation of the machine. By debiting the Machine account, the company accurately reflects the cost of acquiring and setting up the machine, which will be beneficial for tracking and reporting purposes.

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  • 5. 

    Rs. 2,500 spent on the overhaul of a machine purchased second-hand is:

    • A.

      Capital expenditure

    • B.

      Revenue expenditure

    • C.

      Deferred revenue expenditure

    • D.

      None of the above

    Correct Answer
    A. Capital expenditure
    Explanation
    The Rs. 2,500 spent on the overhaul of a machine purchased second-hand is considered a capital expenditure. This is because the overhaul is a significant expense that improves the condition and extends the useful life of the machine. Capital expenditures are investments made to acquire or improve long-term assets, such as equipment or property, and are not immediately consumed or used up in the normal course of business operations.

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  • 6. 

    The basic consideration(s) in the distinction between capital and revenue expenditures is/are:

    • A.

      Nature of business.

    • B.

      Effect on revenue generating capacity of business.

    • C.

      Purpose of expenses.

    • D.

      All of the above.

    Correct Answer
    D. All of the above.
    Explanation
    The basic consideration in the distinction between capital and revenue expenditures is all of the above. The nature of the business, the effect on the revenue generating capacity of the business, and the purpose of expenses all play a role in determining whether an expenditure is classified as capital or revenue. These factors help to determine whether the expenditure is a long-term investment in the business or a regular operating expense.

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  • 7. 

    A bad debt recovered during the year is a:

    • A.

      Capital expenditure

    • B.

      Revenue expenditure

    • C.

      Capital receipt

    • D.

      Revenue receipt

    Correct Answer
    D. Revenue receipt
    Explanation
    A bad debt recovered during the year is classified as a revenue receipt because it represents income that is earned as a result of the recovery of a previously written-off debt. Revenue receipts are typically generated from the normal operations of a business and are recorded as part of the revenue or income section of the income statement. In contrast, capital receipts are generated from non-operating activities such as the sale of assets or investments. Therefore, a bad debt recovered is considered a revenue receipt rather than a capital receipt.

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  • 8. 

    Carriage charges paid for a new plant purchased if debited to carriage account would affect:   

    • A.

      Plant account

    • B.

      Carriage account

    • C.

      Plant and carriage accounts

    • D.

      None of the three

    Correct Answer
    C. Plant and carriage accounts
    Explanation
    If carriage charges paid for a new plant purchased are debited to the carriage account, it would mean that the expenses related to the carriage charges are being recorded in the carriage account. However, since the charges are directly related to the purchase of the new plant, they should be recorded in the plant account instead. Therefore, debiting the carriage account would result in an incorrect allocation of expenses. This would affect both the plant account and the carriage account, as the plant account would not reflect the correct cost of the new plant and the carriage account would show expenses that are not related to carriage charges.

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  • 9. 

    On January 1, 2006, Victory Ltd., purchased second-hand machinery for Rs.50,000 and spend Rs.2,000 as shipping and forwarding charges, Rs.1,000 as import duty, Rs.1,000 as carriage inwards, Rs.500 is repair charges, Rs.200 as installation charges, Rs.400 as the brokerage of the middle man and Rs.100 for an iron pad. The total cost of machinery is:

    • A.

      Rs.55,100

    • B.

      Rs.55,000

    • C.

      Rs.54,600

    • D.

      Rs.55,200

    Correct Answer
    D. Rs.55,200
    Explanation
    The total cost of the machinery is Rs.55,200. This is calculated by adding the purchase price of Rs.50,000 with the additional expenses incurred such as shipping and forwarding charges (Rs.2,000), import duty (Rs.1,000), carriage inwards (Rs.1,000), repair charges (Rs.500), installation charges (Rs.200), brokerage (Rs.400), and the cost of the iron pad (Rs.100). Adding all these amounts together gives a total cost of Rs.55,200.

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  • 10. 

    Material costing Rs.700 in the erection of the machinery and the wages 4 paid for it amounting to Rs. 400 should be debited to:

    • A.

      Material account

    • B.

      Wages account

    • C.

      Purchases account

    • D.

      Machinery account

    Correct Answer
    D. Machinery account
    Explanation
    The material costing Rs.700 and the wages paid for it amounting to Rs.400 should be debited to the Machinery account because these expenses are directly related to the erection of the machinery. By debiting them to the Machinery account, it accurately reflects the cost of the machinery and helps in determining the total cost of the machinery.

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  • 11. 

    Expenses incurred to retain the title of a building is a:

    • A.

      Revenue expenditure

    • B.

      Capital expenditure

    • C.

      Deferred revenue expenditure

    • D.

      None of the above

    Correct Answer
    A. Revenue expenditure
    Explanation
    Expenses incurred to retain the title of a building are considered revenue expenditure. Revenue expenditure refers to expenses that are incurred in the normal course of business operations and are expected to provide benefits only in the current accounting period. In this case, the expenses incurred to retain the title of a building are ongoing expenses that are necessary for the continued ownership and use of the building, such as property taxes, insurance, and maintenance costs. These expenses do not result in the acquisition or improvement of a long-term asset, hence they are classified as revenue expenditure.

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  • 12. 

    Rs.5,000 spent to remove a worn-out part and replace it with a new one is:

    • A.

      Capital expenditure

    • B.

      Revenue expenditure

    • C.

      Deferred revenue expenditure

    • D.

      None of the above

    Correct Answer
    B. Revenue expenditure
    Explanation
    The given answer, "Revenue expenditure," is correct because spending Rs.5,000 to remove a worn-out part and replace it with a new one is considered a regular expense incurred in the normal course of business operations. Revenue expenditures are expenses that are incurred to maintain the day-to-day operations of a business and are not expected to provide long-term benefits or increase the value of an asset. Therefore, the replacement of the worn-out part falls under the category of revenue expenditure.

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  • 13. 

    Rs.5,000 was spent by Mrs. Saroj in addition to machinery to increase the production capacity. The amount is:

    • A.

      Revenue in nature

    • B.

      Deferred revenue in nature

    • C.

      Capital in nature

    • D.

      Liability in nature

    Correct Answer
    C. Capital in nature
    Explanation
    The amount of Rs.5,000 spent by Mrs. Saroj in addition to machinery to increase the production capacity is classified as "Capital in nature". This means that the expenditure is considered as an investment in the business and is expected to generate long-term benefits for the company. It is not considered as revenue, deferred revenue, or a liability, as it does not represent income earned or owed to others. Rather, it represents a capital outflow to enhance the business's productive capacity.

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  • 14. 

    An old piece of furniture was purchased for Rs.10,000.It was repaired for Rs.100.The repairs account should be debited by:

    • A.

      Rs. 10,000

    • B.

      Rs.10,100

    • C.

      Rs.100

    • D.

      Nil

    Correct Answer
    D. Nil
    Explanation
    Since the repairs account should be debited, it means that an expense is being recorded. However, in this scenario, the repairs were done on an old piece of furniture that was already purchased. Therefore, the cost of repairs should be added to the original cost of the furniture, rather than being treated as a separate expense. As a result, there is no need to debit the repairs account separately, hence the correct answer is "Nil".

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  • 15. 

    Rs. 5,000 incurred for up-gradation of the computer by the installation of 128 MB RAM is:

    • A.

      Capital expenditure

    • B.

      Deferred revenue expenditure

    • C.

      Revenue expenditure

    • D.

      None of the above

    Correct Answer
    A. Capital expenditure
    Explanation
    The cost of upgrading the computer by installing 128 MB RAM is considered a capital expenditure because it improves the overall capacity and efficiency of the computer system. Capital expenditures are investments made to acquire or improve long-term assets that will benefit the business over an extended period of time. In this case, the RAM upgrade enhances the computer's performance and functionality, making it a long-term investment rather than a regular operating expense.

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  • 16. 

    Rs. 5,000 spent on maintenance of plant and machinery is_______ 

    • A.

      Capital expenditure

    • B.

      Revenue expenditure

    • C.

      Deferred capital expenditure

    • D.

      None of the three

    Correct Answer
    B. Revenue expenditure
    Explanation
    The Rs. 5,000 spent on maintenance of plant and machinery is considered a revenue expenditure. Revenue expenditures are expenses incurred in the day-to-day operations of a business to generate revenue. They are typically recurring expenses that are necessary to maintain the efficiency and functionality of the assets. In this case, the maintenance cost is not a capital expenditure because it does not result in the acquisition or improvement of a long-term asset. Instead, it is an ongoing expense that is necessary to keep the plant and machinery in good working condition.

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  • 17. 

    Mohan runs a restaurant. He renovates some of the old cabins to increase some space—the amount of Rs. 15,000 was incurred on the renovation. The amount to be charged to the profit and loss account is:

    • A.

      Nil

    • B.

      Rs.15,000

    • C.

      Rs. 10,000

    • D.

      None of the above

    Correct Answer
    A. Nil
    Explanation
    The correct answer is "Nil" because the amount incurred on renovation is not considered as an expense that needs to be charged to the profit and loss account. Instead, it is considered as a capital expenditure, which is an investment made to improve the business's assets or increase its earning capacity. Therefore, it does not directly affect the profit and loss account.

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  • 18. 

    Money paid to MTNL Rs.10,000 for installing a telephone in the office is:

    • A.

      Expens

    • B.

      Liability

    • C.

      Asset

    • D.

      Revenue

    Correct Answer
    C. Asset
    Explanation
    The money paid to MTNL for installing a telephone in the office is considered an asset because it represents a resource that the company owns and can use to generate future economic benefits. The telephone can be used for communication purposes, which is essential for the smooth functioning of the office and can contribute to the company's operations and profitability. Therefore, it is classified as an asset on the company's balance sheet.

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  • 19. 

    Cost of a tour abroad by the sales manager to develop markets (tour was successful) is:

    • A.

      Capital expenditure

    • B.

      Revenue expenditure

    • C.

      Deferred revenue expenditure

    • D.

      Both (a) & (b)

    Correct Answer
    C. Deferred revenue expenditure
    Explanation
    The cost of a tour abroad by the sales manager to develop markets is considered a deferred revenue expenditure because it is an expense incurred in the current accounting period but will provide benefits in future periods. This expenditure is expected to generate revenue and contribute to the company's long-term growth and profitability. Therefore, it is classified as a deferred revenue expenditure rather than a capital expenditure or a revenue expenditure.

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  • 20. 

    Heavy amount spent on advertisement is______

    • A.

      Capital expenditure

    • B.

      Revenue expenditure

    • C.

      Deferred revenue expenditure

    • D.

      None of the three

    Correct Answer
    C. Deferred revenue expenditure
    Explanation
    Deferred revenue expenditure refers to the expenses incurred on advertisements that provide benefits over multiple accounting periods. These expenses are not treated as immediate expenses but are spread over a certain period. Therefore, if a heavy amount is spent on advertisement, it would be considered as deferred revenue expenditure rather than capital expenditure or revenue expenditure, as it is not an immediate expense and provides long-term benefits.

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  • 21. 

    Rs. 5,000 spent on repairs of a newly purchased old motor car is debited to:

    • A.

      Repairs account

    • B.

      General expenses account

    • C.

      Motor car account

    • D.

      None of the above

    Correct Answer
    C. Motor car account
    Explanation
    When repairs are made on a newly purchased old motor car, the cost of those repairs is debited to the Motor car account. This is because the Motor car account is used to track all expenses related to the motor car, including repairs. By debiting the Motor car account, it accurately reflects the decrease in value of the motor car due to the repairs.

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  • 22. 

    An old machine was purchased for Rs. 60,000. It was repaired for Rs. 5,000 and Rs. 5,000 paid on its installation. Machinery repairs a/c will be debited by:

    • A.

      Rs. 10,000

    • B.

      Rs.5,000

    • C.

      Rs.15,000

    • D.

      None of the three

    Correct Answer
    D. None of the three
    Explanation
    The correct answer is "None of the three" because the machinery repairs account will be debited by the total amount spent on repairing the machine, which is Rs. 5,000. The additional costs of purchasing the machine and its installation are not relevant to the machinery repairs account.

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  • 23. 

    Cost of removal of business to a more convenient locality is:

    • A.

      Capital expenditure

    • B.

      Revenue expenditure

    • C.

      Deferred revenue expenditure

    • D.

      Capital loss

    Correct Answer
    C. Deferred revenue expenditure
    Explanation
    The cost of removal of business to a more convenient locality is considered as a deferred revenue expenditure. This is because the expense is incurred for the purpose of generating future benefits and is spread over a period of time rather than being fully charged to the current period's income statement. The cost of removal is not a capital expenditure as it does not result in the acquisition or improvement of a long-term asset. It is also not a revenue expenditure as it does not relate to the day-to-day operations or maintenance of the business. Additionally, it is not a capital loss as it does not involve the disposal or decrease in value of a capital asset.

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  • 24. 

    Rs. 35,000 was spent on painting the new factory. It is a

    • A.

      Capital expenditure

    • B.

      Revenue expenditure

    • C.

      Deferred revenue expenditure

    • D.

      None of the above

    Correct Answer
    A. Capital expenditure
    Explanation
    The given information states that Rs. 35,000 was spent on painting the new factory. This expense is categorized as a capital expenditure because it is related to the acquisition or improvement of a long-term asset, which in this case is the new factory. Capital expenditures are investments made to enhance the productive capacity or extend the useful life of an asset, and they are typically recorded as assets on the balance sheet.

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  • 25. 

    Amount spent on "Structural alterations" under the pressure of law is a

    • A.

      Capital expenditure

    • B.

      Revenue expenditure

    • C.

      Deferred revenue expenditure

    • D.

      Capital loss

    Correct Answer
    B. Revenue expenditure
    Explanation
    The amount spent on "Structural alterations" under the pressure of law is considered a revenue expenditure. Revenue expenditures are expenses incurred in the normal course of business operations to maintain and generate revenue. In this case, the expenditure is likely related to repairs or modifications required by law to comply with regulations or safety standards. These expenses are necessary for the ongoing operation of the business and are not considered a capital investment.

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  • 26. 

    Dismantling and demolition charges is a ___________.

    • A.

      Capital expenditure

    • B.

      Revenue expenditure

    • C.

      Deferred revenue expenditure

    • D.

      None of the three

    Correct Answer
    B. Revenue expenditure
    Explanation
    Dismantling and demolition charges are considered revenue expenditures because they are incurred to maintain or restore the existing condition of an asset. These charges are not incurred to acquire or improve the asset, but rather to remove or demolish it. Therefore, they are treated as expenses in the current accounting period and are deducted from the revenue to calculate the net income.

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  • 27. 

    Amount spent, for the construction of temporary huts, which were necessary for the construction of the cinema house and demolished when the cinema house was ready is a:

    • A.

      Revenue expenditure

    • B.

      Capital expenditure

    • C.

      Deferred revenue expenditure

    • D.

      None of the above

    Correct Answer
    B. Capital expenditure
    Explanation
    The amount spent on the construction of temporary huts, which were necessary for the construction of the cinema house and demolished when the cinema house was ready, is categorized as a capital expenditure. This is because it is an investment made to acquire a long-term asset, which is the cinema house. The temporary huts are considered part of the construction process and are essential for the completion of the cinema house. Once the cinema house is ready, the temporary huts are no longer needed and are therefore demolished.

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  • 28. 

    Legal expenses incurred in defending a suit for breach of contract to supply goods is a:

    • A.

      Revenue expenditure

    • B.

      Capital expenditure

    • C.

      Deferred revenue expenditure

    • D.

      None of the three

    Correct Answer
    A. Revenue expenditure
    Explanation
    Legal expenses incurred in defending a suit for breach of contract to supply goods is considered a revenue expenditure because it is a cost directly related to the normal operations of the business. Revenue expenditures are typically incurred to maintain or generate revenue in the short term, and they are expensed in the period they are incurred. In this case, the legal expenses are necessary to resolve a dispute related to the company's core business activity of supplying goods, and therefore, they are treated as a revenue expense.

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  • 29. 

    Cost of exceptional repairs of a non-recurring nature by way of overhauling of the entire plant is:

    • A.

      Capital expenditure

    • B.

      Revenue expenditure

    • C.

      Deferred revenue expenditure

    • D.

      Capital lost

    Correct Answer
    C. Deferred revenue expenditure
    Explanation
    Deferred revenue expenditure refers to the expenses that are incurred in the present period but are written off over a period of time. In the given question, the cost of exceptional repairs of a non-recurring nature by way of overhauling the entire plant is considered as deferred revenue expenditure. This means that the expenses incurred for the repair and overhaul of the plant are not immediately charged as revenue expenditure, but are spread over a period of time. This helps in matching the expenses with the revenue generated from the plant over its useful life.

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  • 30. 

    Capital expenditure provide_________ benefit.

    • A.

      Short period

    • B.

      Long period

    • C.

      Very short period

    • D.

      None of the three

    Correct Answer
    B. Long period
    Explanation
    Capital expenditures provide long-term benefits because they involve investments in assets that are expected to generate returns over an extended period of time. These expenditures typically involve the acquisition or improvement of long-lived assets such as property, plant, and equipment, which are essential for the company's operations and growth. By making these investments, companies can enhance their production capabilities, improve efficiency, and increase their competitive advantage in the market. Therefore, capital expenditures are crucial for the long-term success and sustainability of a business.

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  • 31. 

    Rs. 25,000 incurred on structural alterations to existing asset whereby its revenue earning capacity is increased is:

    • A.

      Capital expenditure

    • B.

      Deferred revenue expenditure

    • C.

      Revenue expenditure

    • D.

      None of the above

    Correct Answer
    A. Capital expenditure
    Explanation
    In this case, the expenditure of Rs. 25,000 is incurred on structural alterations to an existing asset, which results in an increase in its revenue earning capacity. This type of expenditure is considered to be a capital expenditure. Capital expenditures are investments made in assets that provide long-term benefits and increase the value or earning capacity of the asset. In contrast, revenue expenditures are regular expenses incurred in the day-to-day operations of a business. Deferred revenue expenditure refers to an expense that is incurred in one accounting period but is carried forward to future periods. Therefore, the correct answer is capital expenditure.

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  • 32. 

    Compensation paid to the retrenched employee is:

    • A.

      Capital expenditure

    • B.

      Revenue expenditure

    • C.

      Deferred revenue expenditure

    • D.

      Capital loss

    Correct Answer
    B. Revenue expenditure
    Explanation
    The compensation paid to the retrenched employee is considered a revenue expenditure. Revenue expenditures are expenses incurred in the normal course of business operations to generate revenue. In this case, the compensation paid to the retrenched employee is a regular expense that is necessary for the ongoing operations of the business and is not a capital expenditure or a capital loss. It is treated as an expense in the income statement and reduces the company's profits for the period.

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  • 33. 

    A boiler was purchased from abroad for Rs. 10,000. Shipping and forwarding charges amounted to Rs. 2,000. Import duty paid Rs. 7,000, and expenses of installation amounted to Rs. 1,000. Amount debited to boiler A/c will be:

    • A.

      10,000

    • B.

      12,000

    • C.

      19,000

    • D.

      20,000

    Correct Answer
    D. 20,000
    Explanation
    The amount debited to the boiler account will be Rs. 20,000. This includes the cost of the boiler (Rs. 10,000), shipping and forwarding charges (Rs. 2,000), import duty (Rs. 7,000), and installation expenses (Rs. 1,000). All these expenses are recorded under the boiler account, resulting in a total debit of Rs. 20,000.

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  • 34. 

    Rs. 1,500 spent on repairs before using a second hand car purchased recently is a:

    • A.

      Capital expenditure

    • B.

      Revenue expenditure

    • C.

      Deferred revenue expenditure

    • D.

      None of the three

    Correct Answer
    A. Capital expenditure
    Explanation
    The expenditure of Rs. 1,500 on repairs before using a second-hand car is considered a capital expenditure. This is because it enhances the value and extends the useful life of the car. Capital expenditures are investments made to acquire or improve long-term assets, such as property, equipment, or vehicles, which provide benefits over multiple accounting periods. In this case, the repairs contribute to the overall value and functionality of the car, making it a capital expenditure.

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  • 35. 

    The rings and pistons of an engine were changed at the cost of Rs. 5,000 to increase fuel efficiency is:

    • A.

      Capital expenditure

    • B.

      Revenue expenditure

    • C.

      Deferred revenue expenditure

    • D.

      None of the above

    Correct Answer
    A. Capital expenditure
    Explanation
    The replacement of rings and pistons in an engine is considered a capital expenditure because it is a long-term investment that enhances the efficiency and performance of the engine. It is not a regular expense that occurs in the normal course of business operations, but rather a one-time cost that provides long-term benefits. Therefore, it falls under the category of capital expenditure rather than revenue expenditure or deferred revenue expenditure.

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  • 36. 

    The Installation expenses for new machinery will be debited to

    • A.

      Cash A/c

    • B.

      Profit & Loss A/c

    • C.

      Machinery A/c

    • D.

      Installation expenses A/c

    Correct Answer
    C. Machinery A/c
    Explanation
    When new machinery is installed, the expenses incurred for the installation are directly related to the machinery itself. Therefore, these expenses should be debited to the Machinery A/c. This ensures that the cost of the machinery is accurately recorded and reflects the total expenditure associated with its installation.

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  • 37. 

    The entrance fee of Rs.50,000 received by Shyam Cricket club is 

    • A.

      Capital Expenditure

    • B.

      Revenue Receipts

    • C.

      Capital receipt

    • D.

      Revenue Expenditures

    Correct Answer
    C. Capital receipt
    Explanation
    The entrance fee of Rs.50,000 received by Shyam Cricket club is classified as a capital receipt. Capital receipts are the funds raised by an organization through the sale of its assets or by taking loans. In this case, the entrance fee is a one-time payment made by individuals to become members of the club. It is not a regular source of income for the club and does not relate to its day-to-day operations or revenue generation. Hence, it is considered a capital receipt.

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  • 38. 

    Interest on capital is....................... for the business.

    • A.

      Revenue

    • B.

      Expense

    • C.

      Gain

    • D.

      None of the above

    Correct Answer
    B. Expense
    Explanation
    Interest on capital is considered an expense for the business because it represents the cost of using borrowed funds or the opportunity cost of using the owner's capital in the business. It is deducted from the business's profits before calculating the net income and is considered a cost of doing business. Therefore, it is classified as an expense rather than revenue or gain.

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  • 39. 

    The un-expired portion of capital expenditure is shown in the financial statement.  

    • A.

      As a liability

    • B.

      As an asset

    • C.

      As an Income

    • D.

      As an expense

    Correct Answer
    B. As an asset
    Explanation
    The un-expired portion of capital expenditure is shown in the financial statement as an asset. This is because capital expenditure refers to the funds used to acquire or improve long-term assets, such as property, equipment, or infrastructure. These assets have a useful life beyond the current accounting period and are expected to generate future economic benefits. Therefore, the un-expired portion of capital expenditure is recorded as an asset on the financial statement, reflecting the value of the investment made by the company.

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  • 40. 

    Which of the following enhances the earning capacity of assets?

    • A.

      Reduction in operating costs

    • B.

      Increase in working capacity of an assets

    • C.

      Replacing damage parts of an assets

    • D.

      Both (b) and (c)

    Correct Answer
    D. Both (b) and (c)
    Explanation
    Both (b) and (c) enhance the earning capacity of assets. Increasing the working capacity of an asset allows it to generate more output or perform more efficiently, which can lead to increased earnings. Similarly, replacing damaged parts of an asset ensures that it continues to function properly, avoiding any potential loss of income due to downtime or reduced productivity. Therefore, both actions contribute to enhancing the earning capacity of assets.

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  • 41. 

    Rs.40,000 spent by a factory in overhauling of its existing plant & machineries. It has enhanced its working life by five years. The aforesaid expenditure is  

    • A.

      Capital expenditure

    • B.

      Revenue expenditure

    • C.

      Deferred revenue expenditure

    • D.

      None of the above

    Correct Answer
    A. Capital expenditure
    Explanation
    The expenditure of Rs.40,000 spent on overhauling the existing plant and machinery is considered a capital expenditure. This is because it has enhanced the working life of the assets by five years, which is a long-term benefit for the factory. Capital expenditures are investments made to improve or acquire long-term assets that will benefit the company over an extended period of time.

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  • 42. 

    Machinery purchased for Rs.30,000 had its book Value Rs.18,000 was sold for Rs.40,000 the capital profit will be:

    • A.

      Rs. 12,000

    • B.

      Rs. 22,000

    • C.

      Rs. 48,000

    • D.

      Rs. 58,000

    Correct Answer
    B. Rs. 22,000
    Explanation
    The capital profit will be Rs.10,000. This can be calculated by subtracting the book value of the machinery (Rs.18,000) from the selling price (Rs.40,000). The difference is Rs.22,000, which represents the capital profit.

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  • 43. 

    Revenue expenditures are recorded in the:

    • A.

      Manufacturing a/c

    • B.

      Trading a/c

    • C.

      P&LA/c

    • D.

      All the above

    Correct Answer
    D. All the above
    Explanation
    Revenue expenditures, which are expenses incurred in the normal course of business to generate revenue, are recorded in the Manufacturing account, Trading account, and Profit and Loss account. The Manufacturing account records all the direct expenses related to the production of goods, including raw materials and labor costs. The Trading account records the buying and selling of goods and includes expenses such as purchases and sales. The Profit and Loss account summarizes all the revenue and expenses of the business, including revenue expenditures, to determine the net profit or loss. Therefore, all three accounts mentioned above record revenue expenditures.

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  • 44. 

    General Manager attended a meeting held abroad to develop the market; the meeting was successful. This expense is like

    • A.

      Deferred revenue expenditure

    • B.

      Capital expenditure

    • C.

      Revenue expenditure

    • D.

      None of the above

    Correct Answer
    A. Deferred revenue expenditure
    Explanation
    The expense of the General Manager attending a meeting held abroad to develop the market is considered a deferred revenue expenditure. This is because the benefits of the meeting, such as increased sales or market expansion, will be realized over a longer period of time rather than immediately. The expenditure is expected to generate future revenue for the company, making it a deferred expense.

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  • 45. 

    An old motor car was purchased for Rs.1,00,000. It was repaired for Rs.10,000, and Rs.15,000 was spent on its painting. Machinery repairs A/c will be debited by:

    • A.

      Rs.25,000

    • B.

      Rs.10,000

    • C.

      Rs.15,000

    • D.

      NIL

    Correct Answer
    D. NIL
    Explanation
    The question states that the old motor car was purchased for Rs.1,00,000 and then repaired for Rs.10,000 and painted for Rs.15,000. However, it does not mention anything about any repairs or painting being done on the machinery. Therefore, the Machinery repairs A/c will not be debited at all, resulting in a debit of NIL.

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Quiz Review Timeline +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Oct 13, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Sep 05, 2011
    Quiz Created by
    Sweetsalman123
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