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CA Foundation · Accounting · Final Accounts of Sole Proprietors

Iyer Enterprises had the following items during the year: (i) Purchase of a new typewriter, Rs 25,000; (ii) Carriage inwards on that typewriter, Rs 1,000; (iii) Repairs to old furniture, Rs 4,000; (iv) Wages paid to own workers for building a partition in the office, Rs 9,000 (materials supplied from stock of cost Rs 6,000 were also used). What total amount should be treated as revenue expenditure?

Only Rs 4,000, the repairs to old furniture, is revenue expenditure. The typewriter with its carriage inwards, and the partition built with own wages and materials, create or improve assets, so they are capitalised and not charged to the Profit and Loss Account.

  1. ARs 4,000Correct
  2. BRs 19,000
  3. CRs 13,000
  4. DRs 5,000

Explanation

The typewriter and its carriage inwards (Rs 26,000) are capital. The partition built by own workers using Rs 9,000 wages and Rs 6,000 materials is a capital cost of Rs 15,000 added to the office premises. Only the repairs of Rs 4,000 are revenue. Rs 13,000 wrongly treats the wages as revenue.

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