Capital And Revenue Expenditure And Receipts (Copy)
Topic 4.1: Capital and Revenue Expenditure and Receipts – Quiz
O Level and IGCSE Accounting
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
1. What is capital expenditure?
A. Money spent on daily operations
B. Money spent on acquiring or improving fixed assets
C. Amount paid to creditors
D. Cost of office supplies
2. Which of the following is an example of capital expenditure?
A. Wages of staff
B. Repair of machinery
C. Purchase of new delivery van
D. Stationery for the office
3. What is revenue expenditure?
A. Money spent to acquire fixed assets
B. Expenses incurred on maintaining assets
C. Money received from sale of fixed assets
D. Cost of issuing shares
4. Which of these is NOT a capital expenditure?
A. Purchase of machinery
B. Cost of installation of machinery
C. Repair of old machinery
D. Extension of factory building
5. Revenue expenditure is recorded in:
A. Statement of financial position
B. Trial balance only
C. Income statement
D. Capital account
6. Capital receipts are:
A. Money earned from daily sales
B. Money received from issuing shares
C. Cash from customers
D. Interest income
7. Which of the following is a revenue receipt?
A. Sale of office furniture
B. Loan received
C. Rent received from subletting a warehouse
D. Issue of debentures
8. If the purchase of a machine is treated as revenue expenditure, what is the impact on profit?
A. Profit increases
B. No effect
C. Profit decreases
D. Asset valuation increases
9. If a repair is wrongly treated as capital expenditure, what is the effect on profit?
A. Profit increases
B. Profit decreases
C. No effect
D. Asset value decreases
10. How does treating capital expenditure as revenue affect the statement of financial position?
A. Overstates profit, understates assets
B. Overstates assets and profit
C. Understates assets and profit
D. No impact
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
11. Which of the following best describes capital receipts?
A. Incomes earned during normal operations
B. Receipts from non-operating and one-off activities
C. Daily cash sales
D. Rent received from customers
12. What is the correct treatment of capital expenditure?
A. Deducted from gross profit
B. Debited to income statement
C. Added to asset value in balance sheet
D. Recorded as an expense
13. Painting of a new factory before use is:
A. Capital expenditure
B. Revenue expenditure
C. Capital receipt
D. Revenue receipt
14. Repairs after using a machine are classified as:
A. Capital expenditure
B. Revenue expenditure
C. Capital receipt
D. Revenue receipt
15. Which of these would be recorded as revenue income?
A. Loan from bank
B. Commission received
C. Proceeds from sale of vehicle
D. Owner’s capital
16. Which item would appear in the income statement?
A. Sale of fixed asset
B. Owner’s investment
C. Rent received
D. Proceeds from share issue
17. An incorrect classification of a capital receipt as a revenue receipt will:
A. Understate income
B. Overstate income
C. Understate assets
D. Overstate liabilities
18. Which of the following is both capital and revenue expenditure combined?
A. Buying new machine and paying wages to install
B. Paying wages of office staff
C. Buying goods for resale
D. Paying rent and utilities
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
19. A business receives $50,000 from issuing shares. This is a:
A. Capital receipt
B. Revenue receipt
C. Capital expenditure
D. Revenue expenditure
20. Overhauling a second-hand machine before use is:
A. Revenue expenditure
B. Capital expenditure
C. Revenue receipt
D. Capital receipt
21. What is the impact on profit if a capital receipt is wrongly recorded as revenue receipt?
A. Profit increases
B. Profit decreases
C. No effect
D. Profit is accurate
22. Which of these would overstate profit if incorrectly treated?
A. Treating revenue expenditure as capital
B. Treating capital expenditure as revenue
C. Treating revenue receipt as capital
D. Treating revenue income as liability
23. Which of the following affects both the income statement and the statement of financial position?
A. Incorrect classification of capital receipt
B. Correct discount received
C. Commission income recorded
D. Revenue expense posted correctly
24. An example of revenue receipt is:
A. Sale of land
B. Rent received
C. Loan from owner
D. Issue of shares
25. Which would increase the value of non-current assets in the balance sheet?
A. Repairs
B. New machinery purchase
C. Payment to creditor
D. Payment of salary
26. Incorrectly classifying revenue receipt as capital would:
A. Understate profit
B. Overstate profit
C. Overstate liabilities
D. Understate asset
27. Where does revenue expenditure appear?
A. Assets
B. Liabilities
C. Income statement
D. Bank reconciliation
28. Which of the following does NOT affect profit?
A. Capital expenditure
B. Revenue expenditure
C. Revenue receipt
D. Discount received
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
29. Purchase of land is recorded as:
A. Revenue expenditure
B. Revenue receipt
C. Capital expenditure
D. Capital receipt
30. Salaries paid to factory workers are:
A. Capital receipt
B. Capital expenditure
C. Revenue expenditure
D. Revenue receipt
Answer key and explanations
Topic 4.1 – Capital and Revenue Expenditure and Receipts
O Level and IGCSE Accounting
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
1. Correct Answer: B
Explanation: Capital expenditure is money spent on acquiring or improving non-current assets like buildings, vehicles, machinery.
2. Correct Answer: C
Explanation: Buying a new delivery van is a capital expenditure—it creates a long-term asset for the business.
3. Correct Answer: B
Explanation: Revenue expenditure maintains assets or supports day-to-day business operations.
4. Correct Answer: C
Explanation: Repair of machinery is a revenue expense, not capital—it does not increase the value of the asset.
5. Correct Answer: C
Explanation: Revenue expenditure is recorded as an expense in the income statement.
6. Correct Answer: B
Explanation: Capital receipts include non-operating income like issuing shares, not from normal trading activities.
7. Correct Answer: C
Explanation: Rent received from subletting is a recurring income from normal operations—thus, a revenue receipt.
8. Correct Answer: C
Explanation: Treating a capital purchase as a revenue expense inflates expenses and reduces profit.
9. Correct Answer: A
Explanation: Treating repairs as capital overstates the asset and delays expense recognition, increasing profit falsely.
10. Correct Answer: A
Explanation: Profit is overstated (because expenses are understated), and the asset value is understated as it wasn’t added.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
11. Correct Answer: B
Explanation: Capital receipts come from non-operational activities such as issuing shares, selling fixed assets, or loans.
12. Correct Answer: C
Explanation: Capital expenditure increases the value of non-current assets on the statement of financial position.
13. Correct Answer: A
Explanation: Painting before first use is necessary to bring the asset to usable condition—hence capital.
14. Correct Answer: B
Explanation: Repairs after use are revenue expenses—part of normal business operations.
15. Correct Answer: B
Explanation: Commission received is income from trading activity and appears in the income statement.
16. Correct Answer: C
Explanation: Rent received is a revenue income and is shown in the income statement.
17. Correct Answer: B
Explanation: Classifying a capital receipt (non-trading income) as revenue receipt overstates income and profit.
18. Correct Answer: A
Explanation: Buying machinery is capital, and wages for installing it are treated as part of capital expenditure.
19. Correct Answer: A
Explanation: Share issue is a capital receipt—it increases the owner’s equity, not income.
20. Correct Answer: B
Explanation: Making a second-hand machine usable is capital expenditure.
21. Correct Answer: A
Explanation: Revenue increases, and thus profit is overstated incorrectly if a capital receipt is treated as revenue.
22. Correct Answer: B
Explanation: Capital expenses shown as revenue increase total expenses and falsely reduce profits.
23. Correct Answer: A
Explanation: Incorrect classification of capital receipts will affect income (profit) and capital (SFP).
24. Correct Answer: B
Explanation: Rent received is from routine operations—it is a revenue receipt.
25. Correct Answer: B
Explanation: Buying a new machine increases non-current asset value in the statement of financial position.
26. Correct Answer: A
Explanation: Profit is understated if revenue income is shown as capital and not included in the income statement.
27. Correct Answer: C
Explanation: Revenue expenditure is included in the income statement as it affects profit.
28. Correct Answer: A
Explanation: Capital expenditure affects the asset value, not the profit of the period.
29. Correct Answer: C
Explanation: Land purchase is capital expenditure—long-term asset addition.
30. Correct Answer: C
Explanation: Wages to factory staff are recurring and operational—hence, revenue expenditure.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course