i) On 30 September, 2017, the company sold delivery equipment for $9,000. The de
ID: 2410034 • Letter: I
Question
i) On 30 September, 2017, the company sold delivery equipment for $9,000. The delivery equipment was purchased on January, 2015, for $21,000 and was estimated to have a $3,000 residual value at the end of its 5-year life. Depreciation on the delivery equipment has been recorded through 10 31 December, 2016 (ii) On 30 June, 2017, the company sold office equipmen equipment originally Cost $2 disposal of $10,000. 00. The office ad accumulated depreciation to the date of Required: (a) Prepare the journal entries to record transactions (i) and (i) for the company which has a financial year end of 31 December and uses the straight-line method of depreciation. NARRATIONS ARE NOT REQUIRED. (10 marks) (b) Explain the differences between capital expenditure and revenue expenditure. Provide 2 examples of each type of expenditure. (6 marks)Explanation / Answer
Journal entries: Date Accounts title an explanations Debit $ Credit $ 30-Sep Depreciation expense Account Dr. 2,700 Accumulated depreciation Account 2,700 30-Sep Cash account Ddr. 9000 Accumulated depreciation (3600+3600+2700) 9900 Loss on Sale of equipment Account Dr. 2100 Delivery equipment Account 21000 30-Jun Cash account Dr. 18,000 Accumulated depreciation Account Dr. 10,000 office equipment Account 24,000 Gain on sale of equipment 4,000 Difference between capital and revenue expenditure Capital expenditure are those expenditures which are once incurred will provide long term period benefits to the business. Revenue expenditure are those which happen to benefir a shoter period of time normally an year. Capital expenditure are normally capitalised in the balance sheet and is charged as expense on an amortization basis. Whereas, revennue expenditure are charged to income statement for the year incurred. Examples: General repairs of equiopment is a revenue expenditure. However, the omplete overhauling of machinery which will increasse its production capacity is a capiital expenditure. Salaries and wages paid is revenue expenditure however, retrenchment compensation is a capital expnediture.
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