Revenue Recognition - Lecture 3b

Question 1

Realisation concept states that

Answer 1

profit is only realised when control of goods passes to the buyer

Question 2

Capital expenditure

Answer 2

• Tends to be for one-off or irregular purchases
• The benefits should last for more than 12 months
• The result is a non-current asset on the Statement of Financial Position
• Can also be for improvements* to existing assets
  *for example an improvement in the capacity (volume) of activity a machine or
  piece of equipment can handle, or in the speed at which it can perform.

Question 3

Revenue Expenditure

Answer 3

• Tends to be for more frequent purchases
• The benefits should last for 12 months or less
• The result is an expense charged against profit
• Can also be for non-cash items such as depreciation

Question 4

Is this capital or revenue expenditure?

Buying a van for transporting equipment

Answer 4

Capital

Question 5

Is this capital or revenue expenditure?
Putting petrol in the van

Answer 5

Revnue

Question 6

Is this capital or revenue expenditure?

Paying salaries to staff

Answer 6

Revnue

Question 7

Is this capital or revenue expenditure?

Buying laboratory equipment

Answer 7

Capital

Question 8

Is this capital or revenue expenditure?

Buying laboratory consumables

Answer 8

Revenue

Question 9

Is this capital or revenue expenditure?

Paying for a 10 year lease on premises

Answer 9

Capital

Question 10

Is this capital or revenue expenditure?

Depreciation (amortisation) of lease

Answer 10

Revnue

Question 11

Does capital or revenue expenditure go on the income statement?

Answer 11

ONLY REVENUE EXPENDITURE

Capital expenditure goes on the balance sheet (statement of financial position)

Question 12

What is amortisation?

Answer 12

Depreciation on intangible assets e.g leases