1
On what principles would you distinguish between capital and revenue expenditure?
Illustrate your answer by reference to the following:
(a) The cost of repairs and an extension to the premises.
(b) Installation of a gas central heating boiler in place of an oil-fired central heating boiler.
(c) Small but expensive alterations to a cigarette manufacturing machine which increased the
machine’s output by 20%.
2
Explain clearly the difference between capital expenditure and revenue expenditure. State
which of the following you would classify as capital expenditure, giving your reasons:
(a) Cost of building extension to factory.
(b) Purchase of extra filing cabinets for sales office.
(c) Cost of repairs to accounting machine.
(d) Cost of installing reconditioned engine in delivery van.
(e) Legal fees paid in connection with factory extension.