ACCA Applied Knowledge · Financial Accounting · General ledger accounts and journal entries
Which one of the following items should be recorded as capital expenditure in the ledger?
Legal fees on purchasing a freehold building are capital expenditure, because they are directly attributable to acquiring the asset and form part of its cost. Repainting, repairs and road tax maintain or operate assets and are revenue expenses.
- ALegal fees of $2,000 incurred in purchasing a freehold buildingCorrect
- BRepainting of existing office walls costing $2,000
- CReplacing a broken window in a factory costing $2,000
- DAnnual road tax on a delivery van costing $2,000
Explanation
Legal fees directly attributable to acquiring a building form part of its cost and are capitalised. Repainting, repairing a window and road tax merely maintain or operate existing assets, so they are revenue expenditure charged to profit or loss.
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