IGCSE Accounting Paper-1: Specimen Questions with Answers 325 - 326 of 338

Question number: 325

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MCQ▾

Question

Which is capital expenditure for a business which sells computers? (Marks 1)

Choices

Choice (4)

a.

Annual insurance premium

b.

Purchase of a new computer for the business

c.

Purchase of computers for resale

d.

Purchase of printer ink for the business

Answer

b.

Explanation

  • Purchase of a new computer for business use will be a capital expenditure as this is not for resale and the business will continue to generate economic benefits from it for more than one accounting year.

  • Annual insurance premium is recurring in nature. Tt is incurred every accounting year and the benefit of safety from risks is obtained for that year alone. It is a revenue expenditure.

  • Purchase of computers for resale is a revenue expenditure as the business derives economic benefit at once only i. e. at the time of sale.

  • Printer ink is not purchased for once in all. For repeated use of printer, we require ink every month or year depending upon the use. Purchase of printer ink for the business is a revenue expenditure.

Question number: 326

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MCQ▾

Question

An ink stand has been purchased by a firm for a nominal amount. The ink stand is estimated to last for 4 years. It should not be classified as a fixed asset according to which of the following accounting principle? (Marks 1)

Choices

Choice (4)

a.

Materiality

b.

Timeliness

c.

Conservatism

d.

Consistency

Answer

a.

Explanation

  • Materiality principle says that an accounting concept can be ignored while recording a transaction if its adherence is not material in the given circumstance. It is material if its ignorance could influence the decision of the users of financial statements.

  • As per the matching concept, revenue relating to the current accounting year should be matched with expenses of the current accounting year only. This concept also differentiates between capital expenditure and revenue expenditure.

  • But an ink stand of a nominal amount is not material enough to be recorded as fixed assets. Therefore, here the matching concept can be ignored.

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