CMA Foundation · Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions
Which of the following is an example of capital expenditure for a trading firm?
Legal fees paid to acquire title to purchased land are capital expenditure because they form part of the cost of getting the asset ready and legally owned. Depreciation, insurance on stock and routine legal fees for dues are revenue items charged to the period.
- ALegal fees paid to defend a customer's suit for dues
- BLegal fees paid to acquire title to land purchasedCorrect
- CDepreciation on furniture
- DInsurance premium on stock
Explanation
Legal costs incurred to obtain ownership of land are part of the cost of acquiring the asset and are capitalised. The other items are routine costs of running the business, charged to profit and loss.
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