Category: Accounting

In the case of a vehicle retailer, which of the following is capital expenditure?

Select ONE answer:

1. The annual cost of a computer maintenance contract.
2. Legal fees relating to employee accident claims.
3. The cost of constructing a roof over the service station area.
4. The purchase of vehicles for re-sale.

Show your workings to arrive at your answer, and explain and justify your reasons:

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This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct – The annual cost of a computer maintenance contract is revenue expenditure.
2. Not correct – Legal fees relating to employee accident claims is revenue expenditure.
3. Correct
4. Not correct – The purchase of vehicles for re-sale is revenue expenditure

 

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Which of the following is capital expenditure?

Select ONE answer:

1. The cost of repairing a vehicle.
2. The cost of acquiring a vehicle for re-sale.
3. Proceeds arising from the sale of a van that had been used in the business to make deliveries to customers.
4. The cost of a new vehicle acquired for continuing use in the business.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct – The cost of repairing a vehicle is revenue expenditure.
2. Not correct – The cost of acquiring a vehicle for re-sale (a purchase) is revenue expenditure.
3. Not correct – Proceeds arising from the sale of a van that had been used in the business to make deliveries to customers is a capital receipt.
4. Correct

 

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Capital expenditure is . . .

Select ONE answer:

1. money brought into a firm by its proprietor.
2. expenditure incurred to finance the day-to-day operations of a firm.
3. expenditure incurred on the acquisition or improvement of fixed assets.
4. None of the above.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not Correct – is capital (not capital expenditure).
2. Not Correct – is revenue expenditure.
3. Correct
4. Not Correct

 

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All expenditure. when incurred. is shown either as a cost of sale or an expense in the profit and loss account or as a fixed asset in the balance sheet.

In deciding where to show the expenditure. which of the following is not relevant.

Select ONE answer:

1. The improvement value, if any, of the expenditure.
2. The likelihood of being able to recover the expenditure in future accounting periods.
3. The date on which the expenditure was incurred.
4. None of the above.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not Correct – If the expenditure does not have any improvement value, it is revenue expenditure and should be shown as an expense in the profit and loss account. Otherwise. it should be shown as a fixed asset in the balance sheet.
2. Not Correct – if there is a doubt as to whether the expenditure can be recovered in future accounting periods then it must be charged as an expense in the profit and loss account (as only assets which provide benefits over a number of years are fixed assets).
3. Correct
4. Not Correct

 

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On 1 April 1991, a firm bought a machine for £420,000. On that date, the machine had an expected useful economic life of five years and an expected residual value of £20,000. On 1 April 1995, the firm spent £240,000 on a major refurbishment of the machine which extended its useful life by three years and revised its estimated residual value to £60,000.

If the firm uses the straight-line method of depreciation, the depreciation charge for this machine, to be included in the accounts for the year ended?

Select ONE answer:

1. £65,000
2. £70,000
3. £80,000
4. £93,333

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not Correct
2. Initial depreciation charge = (£420,000 – £20,000) / 5 = £80,000 p.a.
   Depreciation charge for the years ended 31 March 1992 – 31 March 1995 (4 years) : £80,000 * 4 = £320,000
   Net Book Value at 1 April 1995 before refurbishment = £420k – £320k = £100,000
   Revised annual depreciation = (£100k + £240k – £60k) / 4 = £70,000
3. Not Correct
4. Not Correct

 

This work is licensed under a Creative Commons Attribution 4.0 International License.