Chapter 3: Capital and Revenue Expenditure

Question 1

Define a non-current asset and give two examples.

Answer 1

A non-current asset is an asset that is purchased with the intention of long-term use.

Examples - Land, Buildings, Vehicles

Question 2

Define capital expenditure.

Answer 2

Capital expenditure is the purchase or improvement of non-current assets.

Question 3

Define revenue expenditure.

Answer 3

Revenue expenditure is expenditure that is not of a capital nature such as repairs and maintenance.

Question 4

What does the IAS 16 set out? (International Accounting Standard)

Answer 4

When an organisation purchases an asset, it is recorded in the statement of financial position at cost.

The cost includes the purchase price and any additional costs.

Question 5

Give at least three examples of additional costs that can be included and one that can’t be included in the cost of an asset.

Answer 5

Can be included
Delivery, legal and professional fees, installation costs and test runs.

Can’t be included
Staff training

Question 6

Give some examples of tangible and non-tangible non-current assets.

Answer 6

Tangible - land, buildings, machinery, cars, computers.

Intangible - patents, licenses and goodwill

Question 7

What are the four different financing options when it comes to purchasing a non-current asset?

Answer 7

Loans, hire purchase, leasing, part exchange

Question 8

What non-current asset can VAT not be reclaimed on?

Answer 8

Motor cars as these will also be used for personal use