Question 1: Differentiate between capital and revenue expenditure.
Question 2: The University took delivery of a microcomputer and printer on 1 July 2008, the starting of its financial year. The list price of the equipments was Rs 99,980 however the University was able to negotiate a price of Rs 80,000 with the supplier. Though, the supplier charged an additional Rs 6,800 to install and test the equipments. The supplier gave a 5% discount if the University paid for the equipments and the additional installation costs in seven days. The University was capable to take benefit of this additional discount. The installation of special electrical wiring for the computer cost Rs 2,200. After initial testing certain modifications costing Rs 3,980 proved essential. Staffs were sent on special training courses to operate the microcomputer and this cost Rs 19,800. The University insured the machine against fire and theft at a cost of Rs 980 per annum. A maintenance agreement was entered into with Clarke Insurance Ltd. Beneath this agreement Clarke Insurance Ltd promised to give 24-hour breakdown cover for one year. The cost of the maintenance agreement was Rs 7,000.
Required: Compute the acquisition cost of the microcomputer to the University.
Question 3: The financial year of Glassware Ltd. will end on 31 December 2008. At 1 January 2008, the company had in use equipment with a total accumulated cost of Rs 135,620 that had been depreciated by a total of Rs 81,734. Throughout the year ended 31 December 2008, Glassware Ltd. purchased new equipment costing Rs 47,800 and sold off equipment that had originally cost Rs 36,000 and that had been depreciated by Rs 28,224, for Rs 5,700. No further purchases or sales of equipment are planned for December. The policy of the company is to depreciate equipment at 40% by using the diminishing balance method. A full year’s depreciation is given for on all equipment in use by the company at the end of each year.
Required:
Show the given ledger accounts for the year ended 31 December 2008:
a) The equipment account.
b) The Provision for depreciation on equipment account.
c) The Asset disposal account.
d) Give three causes of depreciation and for each give an illustration of the type of fixed asset for which that cause is suitable.