Chapter 11 NCA part 1

Question 1

Define the term non-current assets

Answer 1

Non-current assets refer to resources that businesses own that are expected to provide future benefits beyond one financial year. Non-current assets are used in a business to generate income.

Question 2

Capital Expenditure definition

Answer 2

-Capital expenditure refers to the costs of buying non-current assets, to enhance the non-current assets as well as all expenditures to bring the non-current assets to their intended use. It provides benefits that last for more than one year and is recorded as non-current assets in the statement of financial position.

Question 3

Revenue expenditure definition

Answer 3

-Revenue expenditure refers to costs to operate, repair and maintain the non-current assets in working condition. It provides benefits which will be used within one year. It is recorded as an expense in the statement of financial performance.

Question 4

Explain the differences between capital and revenue expenditure

Answer 4

-Capital expenditure refers to the costs of buying non-current assets, enhance the non-current assets as well as all expenditures to bring the non-current assets to their intended use. On the other hand, revenue expenditure refers to costs to operate, repair and maintain the non-current assets in working condition.
-Capital expenditure provides benefits that last for more than one year while revenue expenditure provides benefits which will be used within one year.
-Capital expenditure is recorded as non-current assets in the statement of financial position while revenue expenditure is recorded as expense in the statement of financial performance.

Question 5

Materiality Theory Definition

Answer 5

-Materiality theory states that the amount spent on non-current assets is insignificant to decision-making, it can be classified as revenue expenditure and be reported in the statement of financial performance as an expense.