Double Entry Book Keeping Ts Grewal (2016) Solutions for Class 11 Commerce Accountancy Chapter 12 Capital And Revenue Expenditure/Income are provided here with simple step-by-step explanations. These solutions for Capital And Revenue Expenditure/Income are extremely popular among class 11 Commerce students for Accountancy Capital And Revenue Expenditure/Income Solutions come handy for quickly completing your homework and preparing for exams. All questions and answers from the Double Entry Book Keeping Ts Grewal (2016) Book of class 11 Commerce Accountancy Chapter 12 are provided here for you for free. You will also love the ad-free experience on Meritnation’s Double Entry Book Keeping Ts Grewal (2016) Solutions. All Double Entry Book Keeping Ts Grewal (2016) Solutions for class 11 Commerce Accountancy are prepared by experts and are 100% accurate.
Page No 17.14:
Question 1:
Answer:
(i) Any amount spent on the acquisition of asset, be it a new asset or a second hand asset, is an expense of capital nature. Here, a second hand machine was purchased and repairs charges were incurred along with the carriage and freight expenses (incurred on acquisition). All such expenses are of capital nature. Thus, it is a capital expenditure because it is incurred to put the machine in working conditions.
(ii) When a new building is purchased or constructed, then all the expenses incurred till the date at which building is put to use are to be capitalised. So, painting expenses incurred on a newly constructed (or purchased) factory is a capital expenditure.
(iii) Carriage paid on the purchase of goods is a revenue expenditure because it is an ordinary business expense of routine nature.
(iv) Legal expenses incurred on the purchase of land is a capital expenditure. This is because all the expenses incurred up to the date at which land is put to use are to be capitalised. So, the legal expenses are of capital nature.
(v) Custom duty paid on the import of machinery (acquisition of asset) for the modernisation of factory production is a capital expenditure. Moreover, as this expense will increase the production capacity in future, therefore it an expense of capital nature.
(vi) Custom duty paid on the purchase of raw materials (goods) is a revenue expenditure because it is an ordinary expense of recurring nature.
(vii) Repair charges necessitated by negligence (on existing assets) is a recurring nature expense. Such repairs arise due to normal wear and tear of assets. Therefore, repair expenses incurred are categorised under revenue expenditure.
Page No 17.14:
Question 2:
(i) Any amount spent on the acquisition of asset, be it a new asset or a second hand asset, is an expense of capital nature. Here, a second hand machine was purchased and repairs charges were incurred along with the carriage and freight expenses (incurred on acquisition). All such expenses are of capital nature. Thus, it is a capital expenditure because it is incurred to put the machine in working conditions.
(ii) When a new building is purchased or constructed, then all the expenses incurred till the date at which building is put to use are to be capitalised. So, painting expenses incurred on a newly constructed (or purchased) factory is a capital expenditure.
(iii) Carriage paid on the purchase of goods is a revenue expenditure because it is an ordinary business expense of routine nature.
(iv) Legal expenses incurred on the purchase of land is a capital expenditure. This is because all the expenses incurred up to the date at which land is put to use are to be capitalised. So, the legal expenses are of capital nature.
(v) Custom duty paid on the import of machinery (acquisition of asset) for the modernisation of factory production is a capital expenditure. Moreover, as this expense will increase the production capacity in future, therefore it an expense of capital nature.
(vi) Custom duty paid on the purchase of raw materials (goods) is a revenue expenditure because it is an ordinary expense of recurring nature.
(vii) Repair charges necessitated by negligence (on existing assets) is a recurring nature expense. Such repairs arise due to normal wear and tear of assets. Therefore, repair expenses incurred are categorised under revenue expenditure.
Answer:
(i) Expenses incurred on dismantling, removing and reinstalling plant and machinery to a more convenient site is a revenue expenditure. Since, such expenses do not bring any enduring benefits nor do they enhance the value of assets in any manner, therefore these are considered as revenue nature expenses.
(ii) Expenses incurred on the removal of stock to a new site is a revenue expenditure. Since, these expense do not bring any enduring benefits nor do they enhance the value of the assets, therefore these are considered as revenue nature expenses..
(iii) Amount paid for the erection of new machinery (expenses incurred on a newly acquired asset) is a capital expenditure. This is because all expenses incurred up to the date at which the machine is put to use are to be capitalised.
(iv) Any amount spent on the acquisition of asset, be it a new asset or a second hand asset, is an expense of capital nature. Here, expenses incurred on the repairs of factory are recognised as capital expenditure, assuming that the repair expenses were incurred at the time of acquisition of second-hand factory.
(v)* Replacement charges incurred on car’s engine, rings and pistons, improve its mileage to 20 kms per litre. Since, these replacement expenses improve the working capacity of the car, therefore they are categorised under capital expenditure.
(vi) Loss suffered on the demolishing of an old building is a revenue loss (incurred on scraping of an existing asset). On the other hand, the expenses incurred on the acquisition of building (new asset) is a capital expenditure.
Note*: The answer of part (v) as per book is ‘Revenue Expenditure’. However, as per our explanation it should be categorised under ‘Capital Expenditure’.
Page No 17.14:
Question 3:
(i) Expenses incurred on dismantling, removing and reinstalling plant and machinery to a more convenient site is a revenue expenditure. Since, such expenses do not bring any enduring benefits nor do they enhance the value of assets in any manner, therefore these are considered as revenue nature expenses.
(ii) Expenses incurred on the removal of stock to a new site is a revenue expenditure. Since, these expense do not bring any enduring benefits nor do they enhance the value of the assets, therefore these are considered as revenue nature expenses..
(iii) Amount paid for the erection of new machinery (expenses incurred on a newly acquired asset) is a capital expenditure. This is because all expenses incurred up to the date at which the machine is put to use are to be capitalised.
(iv) Any amount spent on the acquisition of asset, be it a new asset or a second hand asset, is an expense of capital nature. Here, expenses incurred on the repairs of factory are recognised as capital expenditure, assuming that the repair expenses were incurred at the time of acquisition of second-hand factory.
(v)* Replacement charges incurred on car’s engine, rings and pistons, improve its mileage to 20 kms per litre. Since, these replacement expenses improve the working capacity of the car, therefore they are categorised under capital expenditure.
(vi) Loss suffered on the demolishing of an old building is a revenue loss (incurred on scraping of an existing asset). On the other hand, the expenses incurred on the acquisition of building (new asset) is a capital expenditure.
Note*: The answer of part (v) as per book is ‘Revenue Expenditure’. However, as per our explanation it should be categorised under ‘Capital Expenditure’.
Answer:
(i) Carriage paid on the purchase of goods is a revenue expenditure because it is a routine expense of recurring nature. Such expenses are debited to Carriage Account and credited to Bank Account.
(ii) Purchase of packing material for the distribution of goods is a revenue expenditure because it is an ordinary business expense. Such expenses are debited to Packing Charges Account and credited to Cash Account.
(iii) Purchase of duplicator for use in own office from India Trading Co. is a capital expenditure because it is an addition in the assets of the firm. Such expenses will be debited to Duplicator Account and credited to India Trading Co. Account.
(iv) Purchase of car is a capital expenditure because it is an addition in the assets of the firm. Such expense will be debited to Car Account and credited to Ayub’s Capital Account.
Page No 17.15:
Question 4:
(i) Carriage paid on the purchase of goods is a revenue expenditure because it is a routine expense of recurring nature. Such expenses are debited to Carriage Account and credited to Bank Account.
(ii) Purchase of packing material for the distribution of goods is a revenue expenditure because it is an ordinary business expense. Such expenses are debited to Packing Charges Account and credited to Cash Account.
(iii) Purchase of duplicator for use in own office from India Trading Co. is a capital expenditure because it is an addition in the assets of the firm. Such expenses will be debited to Duplicator Account and credited to India Trading Co. Account.
(iv) Purchase of car is a capital expenditure because it is an addition in the assets of the firm. Such expense will be debited to Car Account and credited to Ayub’s Capital Account.
Answer:
Capital expenditure refer to those expenses that bring enduring benefits and enhance the value of the assets.
Page No 17.15:
Question 5:
Capital expenditure refer to those expenses that bring enduring benefits and enhance the value of the assets.
Answer:
(i) Wages paid to the employees working in the warehouse is a revenue expenditure. Such wages constitute a part of ordinary business expenses and are therefore debited to the Trading Account.
(ii) Wages paid to the employees for redesigning the warehouse is a capital expenditure because it increases the value of asset. Therefore, it is shown on the Assets side of the Balance Sheet.
(iii) Shelving and structural materials purchased for the redesigning purpose is a capital expenditure because it increases the value of warehouse (asset). Therefore, it is shown on the Assets side of the Balance Sheet.
(iv) Purchase of delivery van is a capital expenditure (acquisition of new asset). Therefore, it is shown on the Assets side of the Balance Sheet.
(v) Purchase of goods for resale is a revenue expenditure because it is an ordinary business expense of recurring nature. Therefore, it is debited to the Trading Account.
Page No 17.15:
Question 6:
(i) Wages paid to the employees working in the warehouse is a revenue expenditure. Such wages constitute a part of ordinary business expenses and are therefore debited to the Trading Account.
(ii) Wages paid to the employees for redesigning the warehouse is a capital expenditure because it increases the value of asset. Therefore, it is shown on the Assets side of the Balance Sheet.
(iii) Shelving and structural materials purchased for the redesigning purpose is a capital expenditure because it increases the value of warehouse (asset). Therefore, it is shown on the Assets side of the Balance Sheet.
(iv) Purchase of delivery van is a capital expenditure (acquisition of new asset). Therefore, it is shown on the Assets side of the Balance Sheet.
(v) Purchase of goods for resale is a revenue expenditure because it is an ordinary business expense of recurring nature. Therefore, it is debited to the Trading Account.
Answer:
(i) Registration expenses incurred on the purchase of land is a capital expenditure. This is because all the expenses incurred up to the date at which the land is put to use are to be capitalised. So, the registration expenses are of capital nature.
(ii) Repair charges paid for remodelling the old building (existing) is a capital expenditure because it is incurred to put the building in use.
(iii) Profit earned on the sale of furniture is a capital profit because it is non-recurring in nature.
(iv) Amount spent on carriage and installation of machinery (newly purchased) is a capital expenditure because it is incurred to put the machinery to use.
(v) Expenses involving heavy amounts (such as advertisement expenses), the benefit of which is expected to be derived in the future years, are known as deferred revenue expenditure.
(vi) Expenses incurred in servicing and changing of oil form part of running and maintenance cost. Such expenses are recurring in nature and are classified under revenue expenditure.
(vii) Construction of basement is a capital expenditure because it is an addition to the assets of the firm.
Page No 17.15:
Question 7:
(i) Registration expenses incurred on the purchase of land is a capital expenditure. This is because all the expenses incurred up to the date at which the land is put to use are to be capitalised. So, the registration expenses are of capital nature.
(ii) Repair charges paid for remodelling the old building (existing) is a capital expenditure because it is incurred to put the building in use.
(iii) Profit earned on the sale of furniture is a capital profit because it is non-recurring in nature.
(iv) Amount spent on carriage and installation of machinery (newly purchased) is a capital expenditure because it is incurred to put the machinery to use.
(v) Expenses involving heavy amounts (such as advertisement expenses), the benefit of which is expected to be derived in the future years, are known as deferred revenue expenditure.
(vi) Expenses incurred in servicing and changing of oil form part of running and maintenance cost. Such expenses are recurring in nature and are classified under revenue expenditure.
(vii) Construction of basement is a capital expenditure because it is an addition to the assets of the firm.
Answer:
(i) True: Those expenses the benefits of which are limited to the current year only are considered as revenue expenditure.
(ii)* False: The profit earned on the sale of fixed assets is added to the current year profits to determine the amount of net profits. The amount received to the extent of book value of the asset is of capital nature while any profit earned is of revenue nature.
(iii) True: A major repair charge incurred on a second hand motor car is a capital expenditure because it is incurred to put the motor car to use.
(iv) False: Overhauling expenses incurred on the repairs of second hand machinery is a capital expenditure because these are spent to bring the machinery in working conditions.
(v)* False: Wages paid for the erection of machinery is debited to the Asset Account and not to the Wages Account. Therefore, wages paid on the erection of newly purchased asset is added to the cost of asset (and shown in the Balance Sheet).
(vi) True: Amount paid for purchasing goodwill (fixed asset) is a capital expenditure because it is an addition to the assets of the firm.
Note*: The answer of part (ii) and part (v) as per the book is ‘True’. However, as per our explanation it should be ‘False’.
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