Capital And Revenue Expenditure

Question 1

What is capital expenditure and what are the two types of assets

Answer 1

Assets the business plans to use over a long period of time
Non current (tangible) assets and intangible assets

Question 2

Examples of non-current assets (tangible)

Answer 2

Land
Buildings and premises
Machinery and equipment
Vehicles
Fixtures and fittings

Question 3

Examples of intangible assets

Answer 3

Goodwill
Patents
Trademarks
Brand names

Question 4

What is goodwill
(Capital expenditure intangible)

Answer 4

Measure of the number of customers

Question 5

What are patents
(Capital expenditure intangible)

Answer 5

When a business pays to protect a unique feature of a product to stop it being copied by a third party without permission

Question 6

What are trademarks ?
(Capital expenditure intangible)

Answer 6

When a business pays to protect a unique characteristic of the business that separates it from competitors
eg logo

Question 7

What is revenue expenditure

Answer 7

Day to day costs in running the business

Question 8

Examples of revenue expenditure

Answer 8

Wages- hourly rate paid to an employee
Utility bills - such as water bills

Question 9

What is reducing-balance depreciation

Answer 9

Shows the loss of value as being higher during the early years

Question 10

What is straight-line depreciation

Answer 10

Reduces the value of an asset by the same amount each year

Question 11

Asset purchase price = £300 000
Residual (resell) value = £20 000
Useful life = 5 years
Straight line depreciation =
(value of asset - residual value) divided by life of the asset

Answer 11

£300,000-£20,000=£280,000
£280,000 divided by 5=£56,000