Chapter 11: Capital and Revenue Transactions — Online MCQ Test
ACCOUNTANCY · CLASS 11th · Tamil Nadu State Board
Practice Chapter 11: Capital and Revenue Transactions with a free chapter-wise online MCQ test.
This chapter covers: This chapter details distinctions between capital expenditure revenue expenditure deferred revenue expenditure capital receipts and revenue receipts. Students analyze financial sta....
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Chapter 11: Capital and Revenue Transactions — Important Questions & Answers
Which of the following is considered a capital expenditure?
- A. Purchase of machinery
- B. Payment of monthly rent
- C. Salary paid to employees
- D. Purchase of raw materials
Answer: A. Purchase of machinery
Expenditure incurred to acquire fixed assets or increase their earning capacity is treated as capital expenditure.
Expenditure incurred to acquire fixed assets or increase their earning capacity is treated as capital expenditure.
Which of the following is an example of revenue expenditure?
- A. Cost of building an extension to a factory
- B. Legal charges incurred to acquire a property
- C. Repairs and maintenance of machinery
- D. Amount spent on installation of a new plant
Answer: C. Repairs and maintenance of machinery
Revenue expenditure is incurred for day-to-day operations and maintaining the existing asset.
Revenue expenditure is incurred for day-to-day operations and maintaining the existing asset.
Expenditure incurred on the installation of a new machine is treated as:
- A. Revenue expenditure
- B. Capital expenditure
- C. Deferred revenue expenditure
- D. Operating expense
Answer: B. Capital expenditure
Any expense incurred until the asset is put to use is considered part of the cost of the asset.
Any expense incurred until the asset is put to use is considered part of the cost of the asset.
If an accountant mistakenly records a capital expenditure as a revenue expenditure, what is the impact on financial statements?
- A. Profit is overstated
- B. Assets are overstated
- C. Profit is understated
- D. Capital is overstated
Answer: C. Profit is understated
Charging a capital item to the Profit and Loss account instead of capitalizing it reduces the net profit for the year.
Charging a capital item to the Profit and Loss account instead of capitalizing it reduces the net profit for the year.
A business purchased a new machine for ₹1,00,000, paid ₹5,000 as freight and ₹2,000 for installation. The amount to be capitalized is:
- A. ₹1,00,000
- B. ₹1,05,000
- C. ₹1,07,000
- D. ₹1,02,000
Answer: C. ₹1,07,000
All costs incurred to bring an asset to its working condition (purchase price + freight + installation) are capitalized.
All costs incurred to bring an asset to its working condition (purchase price + freight + installation) are capitalized.