1. Amount spent on the installation of new machinery is classified as:
Personal Expenditure
Capital Expenditure
Revenue Expenditure
Deferred Revenue Expenditure
Explanation:
Any cost incurred to bring a fixed asset to its working condition (like freight, installation, trial run) is capitalized (added to the cost of the asset) and treated as Capital Expenditure.
2. Heavy expenditure on an advertising campaign for a new product launch is best classified as:
Prepaid Expense
Revenue Expenditure
Deferred Revenue Expenditure
Capital Expenditure
Explanation:
It is revenue in nature (advertising) but the benefit is expected to last for more than one year (new product launch). Hence, it is deferred and written off over 3-5 years. Note: Modern standards (AS 26) are stricter, often forcing this to be expensed immediately, but traditionally in exams, it is Deferred Revenue.
3. Annual maintenance charges paid for machinery are:
Personal Expenditure
Capital Expenditure
Revenue Expenditure
Deferred Revenue Expenditure
Explanation:
Maintenance is a recurring expense required to keep the asset in working condition. It does not increase the capacity or life of the asset, so it is Revenue Expenditure.
4. Legal fees paid to acquire a property is:
Deferred Revenue Expenditure
Revenue Expenditure
Personal Expenditure
Capital Expenditure
Explanation:
Legal expenses incurred to acquire or defend the title of a fixed asset are capitalized as part of the asset's cost. Legal fees for debt recovery would be Revenue Expenditure.
5. Amount spent on major repairs of a second-hand machine purchased to make it operational is:
General Expenditure
Capital Expenditure
Deferred Revenue Expenditure
Revenue Expenditure
Explanation:
Repairs on a second-hand machine *before* it is put to use are capitalized because they are necessary to bring the asset into working condition.
6. Wages paid to workers for installing a new machine should be debited to:
Machine Account
Repair Account
Installation Charges Account
Wages Account
Explanation:
Installation wages are a Capital Expenditure as they are necessary to bring the asset to use. Hence, they are added to the cost of the Machine.
7. Expenditure incurred on Research and Development (R&D) is generally treated as:
Deferred Revenue Expenditure always.
Personal Expenditure of the scientist.
Capital Expenditure always.
Revenue Expenditure, unless it meets specific criteria for recognition as an intangible asset (Ind AS 38).
Explanation:
According to Accounting Standards (AS 26 / Ind AS 38), research costs are expensed (Revenue) as incurred. Development costs can be capitalized (Capital) only if technical and commercial feasibility is demonstrated.
8. Legal expenses incurred to defend the title of an existing asset in a lawsuit are classified as:
Capital Expenditure
Personal Expenditure
Revenue Expenditure
Deferred Revenue Expenditure
Explanation:
This is a tricky one. Legal costs to acquire an asset are Capital. Legal costs to maintain/defend the title of an existing asset are Revenue Expenditure, as they are for maintenance of the asset's status, not improvement.
9. Cost of overhauling an engine to improve fuel efficiency is:
Capital Expenditure
Revenue Expenditure
Deferred Revenue
Loss
Explanation:
If an expenditure increases the future economic benefits (efficiency, capacity, life) beyond the previously assessed standard of performance, it is Capital.
10. "Preliminary Expenses" incurred for the formation of a company are treated as:
Liability
Current Asset
Capital Expenditure (Intangible Asset/Deferred)
Revenue Expenditure
Explanation:
These are costs to bring the entity into existence. They are usually capitalized or treated as deferred revenue expenditure and written off over a period.
11. Whitewashing of a building for the first time at the time of purchase is:
Revenue Expenditure
Capital Expenditure
General Expense
Deferred Revenue Expenditure
Explanation:
Expenses to put an old asset into usable condition (First repairs/whitewash) are capitalized. Subsequent whitewashing is Revenue.