GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Obsolescence cost
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Cost of goods purchased for resale
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Wages paid for the erection of plant and machinery
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Expenses incurred by way of repairs of existing assets which do not in any way add to their earning capacity
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Detailed explanation-1: -Revenue expenditures are short-term expenses used in the current period or typically within one year. However, wages incurred for erection of plant and machinery are long-term expenses whose benefit will accrue till the remaining life of plant and machinery. Hence, it is a capital expenditure.
Detailed explanation-2: -Explanation: Wages paid for the installation of machinery is a capital expenditure and therefore it is added to the cost of machinery. It is, generally, paid once in the life of an asset. It is long-term and capital expenditure.
Detailed explanation-3: -So amount spent on purchase of machinery, on its installation and erection is a capital expenditure.
Detailed explanation-4: -Revenue expenditure includes: Salaries and pensions. spendings on different ministries and departments, etc. Grants made to state governments and other parties are also treated as revenue expenditures, even though these might be used for the creation of fixed assets.