CHAPTER 7

SUGGESTED SOLUTION – SELF ASSESSMENT QUESTIONS

THEORY QUESTIONS

1. Capital expenditure is an expenditure that is related to the non-current asset that will
increase its value because of the improvement of the capacity or efficiency of the
asset. Revenue expenditure is expenditure incurred in the running of the daily
business operation but would not improve the asset’s value.

2. Examples of revenue and capital expenditure

Revenue expenditure Capital expenditure
– The repainting cost of an office block – Legal costs
– The cost for replacing a broken window – Installation costs
screen

3. Depreciation is defined as the allocation of the original cost of the non-current assets
over its useful life.

4. 3 causes if depreciation:
- Wear and tear
- Physical factors
- Obsolescence

5. Difference between straight line method and reducing balance method:

Straight line method
• The straight-line method is
usually defined as an allocation
of the non-current assets cost
evenly through the estimated
useful life of the assets.
Reducing balance method
• Depreciation is computed for
each accounting period by
multiplying the non-current
asset’s carrying value with a
depreciation rate.

MULTIPLE CHOICE QUESTIONS

1. C
2. C
3. C
4. B
5. B
6. D
7. C

1
COMPREHENSIVE QUESTIONS

1. Classify the expenditures either capital or revenue expenditure.

a. Revenue expenditure b. Revenue expenditure

c. Capital expenditure d. Revenue expenditure

e. Capital expenditure f. Revenue expenditure

g. Revenue expenditure h. Capital expenditure

i. Revenue expenditure j. Capital expenditure

2. Value of machinery = Purchase price + Freight charges + Import duty

= RM100,000 + RM4,000 + RM2,000
= RM106, 000
Journal entry:
Dr Machinery 106,000
Cr Cash/Bank 106,000

3.
a. Depreciation – Furniture = 10% x RM20,000
= RM2,000

b. Dr Depreciation – Furniture 2,000

Cr Accumulated depreciation – Furniture 2,000

4.
a. Depreciation – Delivery truck = 15% x (RM100,000 – RM10,000)
= RM13,500

b. Dr Depreciation – Delivery truck 13,500

Cr Accumulated depreciation – Delivery truck 13,500

5.
a. Depreciation – Equipment = 15% x (RM15,000+RM15,000)
= RM4,500
Depreciation – Furniture = 10% x (RM27,000+10,000)
= RM3,700
Depreciation – Delivery Van = 20% x (RM90,000 + 35,000 – 30,000)
= RM19,000

b. Journal entry

2
 Dr Depreciation – Equipment 4,500
Cr Accumulated depreciation – Equipment 4,500

Dr Depreciation – Furniture 3,700

Cr Accumulated depreciation – Furniture 3,700

Dr Depreciation – Delivery Van 19,000

Cr Depreciation – Delivery Van 19,000

Hakim Trading
Statement of Profit or Loss for the year ended 31 December 2018
RM
Expenses:
Depreciation – Equipment 4,500
Depreciation – Furniture 3,700
Depreciation – Delivery Van 19,000

Hakim Trading
Statement of Financial Position as at 31 December 2018
RM RM RM
Cost Acc Carrying
depreciation value
Non-current Assets:
Equipment 30,000 (6,000) 24,000
Furniture 37,000 (7,700) 29,300
Delivery van 125,000 (49,000) 76,000

6.
a. Depreciation – Machinery = 20% x RM150,000
= RM30,000
Depreciation – Office equipment = 10% x RM50,000
= RM5,000
Depreciation – Fixtures & fittings = 15% x (RM30,000 – 9,000)
= RM3,150

Dr Depreciation – Machinery 30,000

Cr Accumulated depreciation – Machinery 30,000

Dr Depreciation – Office equipment 5,000

Cr Accumulated depreciation – Office equipment 5,000

Dr Depreciation – Fixtures & fittings 3,150

Cr Accumulated depreciation – Fixtures & fittings 3,150
b.
3
 Mekar Sdn Bhd
Statement of Profit or Loss for the year ended 31 December 2018
RM
Expenses:
Depreciation – Machinery 30,000
Depreciation – Office equipment 5,000
Depreciation – Fixtures & fittings 3,150

Hakim Trading
Statement of Financial Position as at 31 December 2018
RM RM RM
Cost Acc Carrying
depreciation value
Non-current Assets:
Machinery 150,000 (60,000) 90,000
Office equipment 50,000 (10,000) 40,000
Fixtures & fittings 30,000 (12,150) 17,850