Saturday, June 13, 2020 8:02 AM

MULTIPLE CHOICE QUESTIONS

1. Which of the following statements is true?

a) Purchase of a salesman’s car is capital expenditure and repairs to
a delivery van are revenue expenditure.
b) Repairs to a delivery van are capital expenditure and rent for a
factory is revenue expenditure.
c) Purchase of a salesman’s car is capital expenditure and purchase
of computers for office use is revenue expenditure.
d) Purchase of shelving for the office is capital expenditure and
purchase of computers for office is revenue expenditure.

2. Which of the following are examples of capital expenditure?

i. Purchase of a new computer for office use
ii. Purchase of a second hand computer for office use
iii. Repairs to the computer
iv. Purchase of additional hardware to enhance the computer

a) i, ii and iii
b) ii and iv
c) i, ii, and iv
d) iii and iv

3. Which of the following is an example of revenue expenditure?

i. Purchase of a second hand delivery van
ii. Purchase of stocks for resale
iii. Repairs to the delivery van
iv. Insurance of the delivery van

a) (i), (ii) and (iii)

b) (i), (ii) and (iv)
c) (ii), (iii) and (iv)
d) (iii) and (iv)

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4. Which of the following types of expenditure would be classified as
capital expenditure?
a) Legal fees associated with the purchase of an office
b) Repairs to a delivery van
c) Rent of a long leasehold property
d) Capital introduced

5. Which of the following types of expenditure would generally be

classified as revenue expenditure?
a) Purchase of a delivery van by a courier service
b) Extension to the office building of a toy manufacturer
c) Chairs for resale by an office equipment retailer

6. Which of the following is not an item of capital expenditure?

a) Capital
b) Purchase of a new motor van
c) Purchase of a second hand factory machine
d) Replacement of the managing director’s Mercedes car

7. Which of the following is a characteristic of an item of capital

expenditure?
a) Fixed assets increases in the balance sheet
b) It is charged as an expense in the profit and loss account
c) It is expenditure on repairs to fixed assets
d) It is expenditure incurred to overhaul a fixed asset

8. A receipt is a capital receipt because:

a) The amount is heavy
b) It is credited to capital account
c) It relates to fixed assets

9. Rs. 2,000 spend on the repairs before using the second hand
machinery purchased recently is a:
a) Revenue charge
b) Revenue
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 b) Revenue
c) Capital charge

10. Rs. 5,000 spent on the replacement of worn out part of the
machine is charge to:
a) Capital expenditure
b) Revenue expenditure
c) Capital

11. Freight paid on the new machine will be debited to:

a) Machinery account
b) Freight account
c) Neither of two account

12. Cost of goods purchased for resale is an example of:

a) Capital expenditure
b) Revenue expenditure

13. An expenditure is revenue in nature when:

a) It benefits the current period
b) It benefits the future period
c) It belong to the previous period

14. Expenditure incurred in manufacturing product is a:

a) Revenue charge
b) Capital charge

15. A receipt is a revenue receipt because:

a) The amount is small
b) It relates to the routine activity of the business
c) It is received in the accounting year

16. Purchase of a fixed asset is called:

a) A revenue expenditure
b) A capital expenditure
c) A research and development expenditure
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 c) A research and development expenditure

17. Wages paid for installation of machinery should be debited to:

a) Wages account
b) Cash account
c) Machinery account

18. If no distinction is made between capital and revenue expenditure

then:
a) The figure of debtors and creditors will be incorrect
b) Cash or bank figure will be incorrect
c) Net profit will be incorrect
d) Balances sheet will not balance

19. In the case of a trader in motor vehicles, which of the following is a

capital expenditure?
a) Annual cost of computer maintenance contract
b) Legal fee relating to employee’s accident claims
c) The cost of constructing a roof over the service station area
d) The purchase of vehicles for re-sale

20. Treating a capital expenditure as revenue expenditure:

a) Overstates expenses and understates fixed assets
b) Understates expenses and understates fixed assets
c) Overstates fixed assets and overstates owner’s equity
d) Understates expenses and overstates owner’s equity

21. Which of the following is an example of an item of revenue

expenditure?
a) Insurance of goods in transit to customer
b) Import duties charged on a new non-current asset for the
business
c) Wages of employees installing a new non-current asset into the
business premises
d) A new delivery van

22. A business buys machinery for $500 (cash) and pays machinery
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22. A business buys machinery for $500 (cash) and pays machinery
insurance $50 (cash). Which of the following shows the correct
double entry for this transaction?
a) Debit machinery credit cash $550
$550,
b) Debit cash $550, credit machinery
$550
c) Debit machinery credit cash $550, debit insurance
$500, $50
d) Debit cash $550, credit machinery credit insurance
$500, $50

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