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CMA Foundation · Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions

Nair Textiles spent Rs 5,000 on repainting its factory walls as routine upkeep, Rs 25,000 on adding a new storage room to the factory, and Rs 8,000 on repairing a broken machine belt that restored it to its original working condition. How much should be debited to the Profit and Loss Account as revenue expenditure?

The revenue expenditure is Rs 13,000, being routine repainting of Rs 5,000 plus Rs 8,000 repairs that restored the machine to its original condition. The Rs 25,000 storage room creates a new asset, so it is capitalised rather than charged to profit.

  1. ARs 13,000Correct
  2. BRs 30,000
  3. CRs 33,000
  4. DRs 25,000

Explanation

Repainting (Rs 5,000) and repairs restoring working condition (Rs 8,000) are revenue items: 5,000 + 8,000 = Rs 13,000. The storage room of Rs 25,000 adds a new asset and is capital. Rs 30,000 wrongly includes the storage room instead of the repairs, while Rs 33,000 wrongly adds the storage room to the revenue items.

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