/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} 19E : Distinguishing capital expendi... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 9: 19E (page 488)

: Distinguishing capital expenditures from revenue expenditures consider the following expenditures:

a. Purchase price.

b. Ordinary recurring repairs to keep the machinery in good working order.

c. Lubrication before machinery is placed in service.

d. Periodic lubrication after machinery is placed in service.

e. Major overhaul to extend useful life by three years.

f. Sales tax paid on the purchase price.

g. Transportation and insurance while machinery is in transit from seller to buyer.

h. Installation.

i. Training of personnel for initial operation of the machinery. Classify each of the expenditures as a capital expenditure or revenue expenditure

Short Answer

Expert verified

A company can incur Capital Expenditure for long-term purposes and benefits.

Revenue Expenditure is the expenditure related to the day-to-day activities of business operations.

Step by step solution

01

Meaning of Capital Expenditure and Revenue Expenditure

Capital Expenditure: All the funds utilized by the company for the acquisition and maintenance of the fixed assets are known as capital expenditure.

Revenue Expenditure: The expenses incurred to generate revenue or for managing the operating activities of the company are known as revenue expenditures.

02

Difference between Capital Expenditure and Revenue Expenditure 

Particular

Revenue/Capital expenditure

a. Purchase price

Capital expenditure

b. Ordinary recurring repairs to keep the machinery in good working order.

Revenue expenditure

c. Lubrication before machinery is placed in service

Capital expenditure

d. Periodic lubrication after machinery is placed in service

Revenue expenditure

e. Major overhaul to extend useful life by three years

Capital expenditure

f. Sales tax paid on the purchase price

Capital expenditure

g. Transportation and insurance while machinery is in transit from seller to buyer

Capital expenditure

h. Installation

Capital expenditure

i. Training of personnel for initial operation of the machinery. Classify each of the expenditures as a capital expenditure or revenue expenditure

Capital expenditure

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Which depreciation method ignores residual value until the last year of depreciation? Why?

What does the asset turnover ratio measure, and how is it calculated?

Discarding of a fully depreciated asset On June 15, 2017, Family Furniture discarded equipment that cost \(27,000, a residual value of \)0, and was fully depreciated. Journalize the disposal of the equipment.

Jim Reed manages a fleet of utility trucks for a rural county government. He鈥檚 been in his job for 30 years, and he knows where the angles are. He makes sure that when new trucks are purchased, the residual value is set as low as possible. Then, when they become fully depreciated, they are sold off by the county at residual value. Jim makes sure his buddies in the construction business are first in line for the bargain sales, and they make sure he gets a little something back. Recently, a new county commissioner was elected with vows to cut expenses for the taxpayers. Unlike other commissioners, this man has a business degree, and he is coming to visit Jim tomorrow.

Requirements

1. When a business sells a fully depreciated asset for its residual value, is a gain or loss recognized?

2. How do businesses determine what residual values to use for their various assets? Are there 鈥渉ard and fast鈥� rules for residual values?

3. How would an organization prevent the kind of fraud depicted here?

Alpha Communication purchased equipment on January 1, 2018, for \(27,500. Suppose Alpha Communication sold the equipment for \)20,000 on December 31, 2020. Accumulated Depreciation as of December 31, 2020, was $10,000. Journalize the sale of the equipment, assuming straight-line depreciation was used.
See all solutions

Recommended explanations on Business Studies Textbooks

Actuarial Science in Business

Read Explanation

Financial Performance

Read Explanation

Corporate Finance

Read Explanation

Human 91影视

Read Explanation

International Business

Read Explanation

Strategy

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.