A-AS Level (CIE) Accounting Paper-2: Specimen Questions with Answers 37 - 38 of 53

Question 37

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Short Answer▾

Distinguish between capital expenditure and revenue expenditure

Explanation

Distinguish between Capital Expenditure and Revenue Expenditure
S. noCapital ExpenditureRevenue Expenditure
1.Capital expenditure is incurred for the acquisition or erection of a fixed assetRevenue expenditure is incurred for day to day running of business
2.Capital expenditure is incurred for the purpose of increasing the earning capacity of the businessRevenue expenditure is incurred for maintenance of earning capacity i.e.. for keeping the assets in an efficient working order
3.Capital expenditure yields benefit normally over a long periodRevenue expenditure yields benefits for a maximum period of one year.
4.Capital expenditure is written in the balance sheetRevenue expenditure is written in trading and profit and loss account

Passage

The following balances have been extracted from the books of Jennings Company Limited as at 31st December, 2018.

The Following Balances Have Been Extracted from the Books of Jennings Company Limited as at st December, 2018
Dr.Cr.
Machinery1,60, 000
Land and Building6,74, 000
Depreciation on Machinery16,000
Purchases (adjusted)4,00, 000
Closing Stock1,50, 000
Wages1,20, 000
Sales10,00, 000
Salaries80,000
Bank overdraft2,00, 000
10 % Debentures (issued on 1.1. 04)1,00, 000
Equity share capital-2000 shares of $ 100 each-fully paid2,00, 000
Preference share capital-1000,6 % shares of $ 100 each- fully paid.1,00, 000
16,00, 00016,00, 000

The board of directors of the Jennings Company Limited has decided to make the following appropriations:

(i) To declare equity dividend on paid-up capital

(ii) To pay dividend on the preference share capital in full

(iii) To transfer $ 2,00, 000 to general reserve

Question 38 (1 of 3 Based on Passage)

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Short Answer▾

Prepare Profit and loss appropriation account for Jennings Company limited.

Explanation

Profit and Loss Appropriation Account for the Year Ended 31st Dec, 2018

Profit and Loss Appropriation Account for the Year Ended st Dec, 2018
$$
To General Reserve2,00, 000By balance b/d3,74, 000
To proposed dividend
On Preference share capital 6,00026000
On equity share capital 20,0001,48, 000
To balance of profit c/d3,74, 0003,74, 000

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