CMA Foundation · Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions
Iyer Brothers paid Rs 45,000 as legal fees. Of this, Rs 30,000 was for drafting the title deed on purchase of land and Rs 15,000 was for recovering an overdue trade debt. What is the amount of revenue expenditure?
Revenue expenditure is Rs 15,000. Legal fees of Rs 30,000 for the land title deed form part of the land's cost and are capital. The Rs 15,000 paid to recover a trade debt relates to normal business operations and is charged to Profit and Loss.
- ARs 45,000
- BRs 30,000
- CRs 15,000Correct
- DNil
Explanation
Legal fees for acquiring land are part of its cost, so Rs 30,000 is capital. Fees for debt recovery relate to routine trading and are revenue, Rs 15,000. Rs 45,000 wrongly treats all fees as revenue.
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