Test – Capital and Revenue Expenditure and Receipts

  1. Which one of the following statements is true?
    (a) Capital expenditure does not affect the profitability of a concern but revenue expenditure does.
    (b) Capital expenditure affects the profitability of a concern directly but revenue expenditure does not.
    (c) Capital expenditure affects the profitability of a concern indirectly but revenue expenditure affects directly
    (d) Both capital expenditure and revenue expenditure affect the profitability of a concern directly
  2. Which of the following is deferred revenue expenditure?
    (a) Legal expenses incurred on the purchase of land.
    (b) Expenses on a mega advertisement campaign while launching a new product.
    (c) Expenses incurred on installation of a new machine.
    (d) Wages paid for construction of an additional room in the building.
  3. Which of the following expenditures is considered as deferred revenue expenditure?
    (a) Rs. 2,000 spent on repairs of machinery
    (b) Rs. 4,000 spent on dismantling, transportation and reinstalling plant and machinery to a new site
    (c) Rs. 60,000 spent on construction of railway siding
    (d) Rs. 20,000 spent on some major alterations to a theatre which made it more comfortable and attractive.
  4. Which of the following is not a feature of capital expenditure?
    (a) They yield benefit over a long period
    (b) They are debited to profit and loss account
    (c) They are incurred for acquiring fixed assets
    (d) They increase the earning capacity of the business
  5. Which statement is true for the difference in Capital and Revenue Expenditure?
    (a) Capital expenditures are for short run whereas the revenue expenditures are for long run.
    (b) Capital expenditures are defined for industry whereas the revenue expenditures are defin5ed for firms.
    (c) Capital expenditures are recorded in the books of business whereas the revenue expenditures are need not to record in the books of business.
    (d) Capital expenditures increase earning capacity of business whereas the revenue expenditures are incurred to maintain earning capacity.
  6. Read the statements carefully and choose a correct option given below:
    Statement I: Capital Expenditures and Revenue Expenditures both are non-recurring by Nature.
    Statement II: Capital Expenditures increase earning capacity of business whereas Revenue Expenditures are incurred to maintain earning capacity.
    (a) Only statement I is correct.
    (b) Only statement II is correct.
    (c) Both statements are correct.
    (d) Both statements are incorrect.
  7. “Legal expenses incurred to defend a suit for breach of contract to supply goods” is
    (a) Capital Expenditure
    (b) Revenue Expenditure
    (c) Deferred Revenue Expenditure
    (d) More than one of the above
  8. Which of the following statements are true?
    (i) Prepaid rent is a Personal A/c.
    (ii) Interest on Drawings is an income for the business.
    (iii) Accrued income and income due but not received are same.
    (iv) Cost of obtaining licence to carry out business is a capital expenditure.
    Code :
    (a) (ii) and (iii)
    (b) (i), (ii) and (iii)
    (c) (ii), (iii) and (iv)
    (d) More than one of the above
  9. Mark out which is not a capital expenditure.
    (a) Cost of issuing shares and debenture
    (b) Wages paid for construction of a new office
    (c) Purchase of a new spark plug for Rs.9.75
    (d) Repair on a secondhand vehicle newly purchased
  10. Expenditure incurred by a publisher for acquiring copyrights is a–
    (a) Capital expenditure
    (b) Revenue expenditure
    (c) Deferred revenue expenditure
    (d) None of the above