How is the cost of routine repairs to keep existing machinery in working order classified?
Correct answer C. Revenue expenditure
Topic / 18 questions
Capital And Revenue Expenditure MCQs
Capital And Revenue Expenditure MCQs test how to tell spending that creates or improves long-term assets from spending on day-to-day running costs, and why the difference matters in auditing. They help commerce students and audit job candidates, and every question shows its correct answer instantly after you choose an option.
How is interest received on investments classified?
Correct answer B. Revenue receipt
Spending on overhauling a second-hand machine just after buying it, before it is put into use, is treated as what?
Correct answer B. Capital expenditure
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In which financial statement does capital expenditure mainly appear?
Correct answer D. Balance sheet
A machine is bought for Rs 400,000. Freight is Rs 15,000, installation is Rs 25,000 and the first year’s insurance is Rs 8,000. What amount should be capitalised as the cost of the machine?
Correct answer A. Rs 440,000
How are the proceeds from the sale of an old fixed asset classified?
Correct answer A. Capital receipt
Heavy spending on an advertising campaign expected to benefit the business for several years is usually treated as what?
Correct answer D. Deferred revenue expenditure
How are legal fees paid on the purchase of land treated?
Correct answer A. Added to the cost of the land as capital expenditure
Wages paid to workers for installing a newly purchased machine are treated as what?
Correct answer C. Capital expenditure
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How is the cost of purchasing new machinery for use in a factory classified?
Correct answer B. Capital expenditure
Which one of the following does not count as a revenue expense?
Correct answer D. Cost of accessories of motor vehicles spent at the time of purchase
Which of the following is NOT a cause of depreciation?
Correct answer A. Market expectations
Which of the following will NOT create a secret reserve?
Correct answer D. Goods sent on consignment being shown as actual sales
Which one of the following counts as a revenue reserve?
Correct answer C. Debenture redemption reserve
Once an asset’s book value reaches what percentage of its original cost may a company stop providing depreciation on it?
Correct answer B. Five
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Which of these expenses should NOT be treated as capital expenditure?
Correct answer A. Legal expenses incurred to defend a suit related to title of patent.
When must the board of directors appoint a company’s first auditor?
Correct answer A. Within one month of incorporation of the company
If the directors fail to appoint the first auditor(s), at what meeting do the shareholders appoint them by passing a resolution?
Correct answer C. A general meeting
About Capital And Revenue Expenditure MCQs
This topic sits where accounting and auditing meet. Capital expenditure buys or improves fixed assets and gives benefits over several years, such as machinery and its installation costs, while revenue expenditure maintains the business, such as repairs, wages and rent. Questions ask which items are not revenue expenses, how wrong classification can create secret reserves by understating profit, and what causes depreciation, such as wear and tear, obsolescence and the passage of time rather than market price changes. A few items also touch on the appointment of first auditors. Auditors check these classifications closely.
Exams that include Capital And Revenue Expenditure MCQs
Pakistan
- PPSC
- FPSC
- NTS
- Banking job tests
- Lecturer tests
India
- SSC CGL
- UGC NET
- IBPS PO
Bangladesh
- Bank job exams
- BCS
- Government job tests
Frequently asked questions
What is the difference between capital and revenue expenditure?
Capital expenditure is spending that acquires or improves a fixed asset and benefits the business for more than one accounting period, such as buying machinery. Revenue expenditure is spending on routine operations whose benefit is used up within the period, such as wages, rent and repairs. Capital items go to the balance sheet, revenue items to the income statement.
How can misclassifying expenditure create a secret reserve?
If capital expenditure is wrongly charged as revenue expenditure, profit is understated and assets are shown at less than their true value. The hidden difference is a secret reserve. Auditors examine such classifications because they can mislead shareholders about the true financial position.
Last reviewed October 2026