It is important to diferentiate between capital expenditure and revenue expenditure

It is important to diferentiate between capital expenditure and tax revenue expenditureFixed Asset is last longer and non for resale. For example is premises, motor vehicles, machinery, and fixtures and fittings. online Asset is liquid and bought for resale. For example is cash in hand, cash at bank, stock and debtor.i) Business entity concept is the affairs of a agate line atomic number 18 to be treated asbeing quite separate from the non-business activities of its owners. manikin is the figure for obstinate assets includes a camera that theowner of the business has bought for his own use. assemblage concept is concerned with the different between cash receipts and cash expenditure (actual payments and receipts of money for items) and revenue and expenditure. It states that items should be recorded when used and non when paid for.Example is a bill for electricity was true in the lost financial grade but has been recorded in the current year as payment was only made recentl y.Going Concern Concept is it implies that the business will continue to operate for the foreseeable future.Example the assumption should not be made areIf the business is going to close down in the near futureWhere shortage of cash makes it almost certain that the business will have to cease tradingBusiness have to close down because of shortage of cashThe term is about to close down as the owner is retiring the accountshave not been altered.Consistency concept is each firm should try to choose the modes which give the most reliable picture of the business.Example is the method used for calculating stock has been changed from LIFO to FIFO to overage equal.i) keen expenditure is made when a firm spends money either to profane obdurate assets, orAdd to the value of an existing fixed asset.Included in such amounts should be those spent onAcquiring fixed assets.speech them into the firm.Legal costs of buying makes.Carriage inwards on machinery bought.Any other cost needed to get t he fixed asset ready for use. tax income expenditure is expenditure which is not for increasing the valuefixed assets, but for running the business on a day-to-day basis, is known as revenue expenditure.The difference between revenue and capital expenditure can be seen clearly with the total cost of using a motor van for a firm. To buy a motor van is capital expenditure. The motor van will be in use for several years and is, therefore, a fixed asset.To pay for petrol to use in the motor van for the next few days is revenue expenditure. This is because the expenditure is used up in a few days and does not add to the value of fixed assets.Revenue expenditure is treated to expenses and they will posted to Income statement. majuscule expenditure is treated to fixed assets and transact to Balance sheet.Difference between capital and revenue expenditureExpenditureType of Expenditure1. Buying motor vanCapital2. flatulency costs for motor vanRevenue3. Repairs to motor vanRevenue4. Putting extra headlights on motor vanCapital5. Buying machineryCapital6. Electricity cost of using machineryRevenue7. We spent RM 1,500 on machinery. RM 1,000 was for an item added to the machine RM500 for repairsCapital RM1,000Revenue RM 5008. Painting outside of new buildingCapital9. Three years later- repainting outside of building in (8)Revenued) Reducing balance method apostrophize price 1 yearCost = RM 100,000% = 10%2005 Cost = 100,000 X 10% = 10000 X 7/12= 5833 100,000 5833 = 941672006 Cost = 94167 X 10% = 94167 X 7/12 = 5493 94167 5493 = 88674e) i) relevance is one more factors that must be present in the information for it to beuseful. Information that is not relevant is considered as a waste of worth(predicate) time indecision making.ii) Reliability is the right decision based on a set of financial information would alsodepend on the reliability of the information. In the context, self generatedinformation is considered to be the most reliable as compared to information gather by third parties. The user must be able to depend on the truthfulness of theinformation.iii) Comparability is procedures and practices should remain the same across time andreports, if difference is occurs they should be due to substantive differences in theevents and conditions report rather than arbitrarily implemented practices orprocedures for data collection.iv) understandability is information should be simple but not over simplified.Explanations and interpretations should be included where necessary.Understandability of information is governed by user characteristics andcharacteristics of information provided. Understandability may be relating toa particular decision makes.i) Share holderii) Manageriii) Bankiv) political sympathiesv) Creditor header 2You have been supplied with the following balances for Betsy Li, a sole trader, for the year ended 31 December 2009RM position at cost 140,000Equipment at cost 70,000 provision for depreciation at 01/01/09 Property 4,200 Equipm ent 17,500Purchases 385,000Sales 592,000Stock at 01/01/09 17,400Discount allowed 14,000Discount received 1,900Returns outward 17,600Wages and salaries 43,400Creditors 28,500Debtors 15,800Bank overdraft 2,900Cash in hand 520Drawings 17,950Provision for bad debts at 01/01/09 200General expenses 11,400Long term loan 20,000Capital at 01/01/09 30,670The following adjustments need to be interpreted into accountStock at 31/12/09 is $21,600Wages and salaries outstanding at 31/12/09 are $4,,100General expenses includes a prepayment for rates of $1,000The preparation for bad debts needs increasing to $280Depreciation for the year has still to be provided as followProperty 1.5% per year using the straight line methodEquipment 25% per year using the reducing balance methodLoan interest of $2,000 is outstandingRequireda) Prepare a trial balance for Betsy Li as at 31 December 2009. (10 marks)b) Prepare the Income Statement and Balance Sheet for Betsy Li for the period ending 31December 2009. (15 marks)ANSWER QUESTION 2Trial Balance at 31 December 2009Property140,000Equipment at cost70,000Property4,200Equipment17,500Purchases385,000Sales592,000Stock174,00Discount allowed14,000Discount received1,900Return outward17,600Wages and salaries43,400Creditors28,500Debtors15,800Bank overdraft2,900Cash in hand520Drawings17,950Provision for bad debts200General expenses11,400Long term loan20,000Capital30,670715470715470Income statement for Betsy Li for the year ending 31 December 2009Sales592,000592,000less) Cost of good salesOpening stock17,400Purchase385,000less) Return outward(17,600)367,400Net purchase384,800less) Closing stock(21,600)(363,200)Gross profit228,800add) RevenueDiscount received1,900230,700less) ExpensesDiscount allowed14,000Wages and salaries (43,400+4,100)47,500General expenses (11,400-1000)10400i) Provision for depreciation = Property at cost2,100ii) = Equipment at cost13,125iii) Provision for doubtful dept80Loan interest2,000(89205)Net profit141,495140,000 X 1.5% = 210070,000 17,500 = 52,500 X 25% = 13,125iii) Provision for bad debtsBalance b/d 280 Balance b/d 280Income statement 80280 280CostAccumulatedDepreciationFixed assetsProperty140,0006,300133,700Equipment70,00030,62539,375173075Current assetsStock21,600Debtor15,800Provision for bad debt(280)15,520General expenses prepayment100038,640Current liabilityCreditor28,500Bank overdraft2900Wages and salaries outstanding4,100Loan interest outstanding2000(37,500)1,140174,215Financed byCapital30,670add) Net Profit141,495172,165less) Drawing(17,950)154,215Non-current liabilitiesLong term loan20,000174,215