Which one of the following should be considered a revenue expenditure?
Correct answer: B. Damage paid on account of breach of a contract to supply certain goods
- A. 1000 paid for the execution of a new plant
- B. Damage paid on account of breach of a contract to supply certain goods
- C. Loss of 10,000 incurred in increasing the sitting accommodation of a hotel
- D. Repair to machinery purchased, second hand.
Explanation
Damages paid for breaching a contract to supply goods do not create or improve an asset, so they are revenue expenditure. Plant construction and increasing hotel capacity are capital in nature, while repairs to a second-hand machine may be needed to bring it into working condition.
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Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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