O Level Accounting (7707)•7707/12/M/J/25
Explanation
Capital vs. revenue expenditures for non-current assets Steps:
- Extension of $5000 is a capital expenditure, adding to the premises (non-current asset).
- New equipment of $1000 is a capital expenditure, adding to equipment (non-current asset).
- Repainting of $750 is a revenue expenditure (routine maintenance), expensed without affecting non-current assets.
- Total increase in non-current assets: 1000 = $6000.
Why B is correct:
- Non-current assets increase only by capital expenditures per accounting standards (IAS 16), which are the extension and equipment totaling $6000.
Why the others are wrong:
- A includes only the extension, ignoring the equipment addition.
- C adds repainting to the extension, mistakenly capitalizing a revenue cost.
- D reflects no logical asset increase, possibly a miscalculation of expenses.
Final answer: B
Topic: Capital and revenue expenditure and receipts
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