26 + Interview Questions in CAPITAL IN GENERAL AWARENESS Page 1 InterviewSolution

1.	Revenue expenditure is intended to benefit ……(a) Past period (b) Future period (c) Current period (d) Any period
Answer» (c) Current period current period

Discussion

2.	Write three features of deferred revenue expenditure.
Answer» 1. It is a revenue expenditure, the benefits of which is to be derived over a subsequent period or periods. 2. It is not fully written off in the year of actual expenditure. It is written off over a period of certain years. 3. The balance available after writing off (i.e., Actual expenditure – Amount written off) is shown on the assets side balance sheet.

2.

Write three features of deferred revenue expenditure.

Answer»

1. It is a revenue expenditure, the benefits of which is to be derived over a subsequent period or periods.

2. It is not fully written off in the year of actual expenditure. It is written off over a period of certain years.

3. The balance available after writing off (i.e., Actual expenditure – Amount written off) is shown on the assets side balance sheet.

Discussion

3.	Write any three examples of revenue expenditure.
Answer» 1. Purchase of goods for sale 2. Administrative, selling and distribution expenses 3. Manufacturing expenses

3.

Write any three examples of revenue expenditure.

Answer»

1. Purchase of goods for sale

2. Administrative, selling and distribution expenses

3. Manufacturing expenses

Discussion

4.	Write any two features of revenue expenditure.
Answer» 1. It is recurring in nature. 2. It is incurred for maintaining the earning capacity of the business.

4.

Write any two features of revenue expenditure.

Answer»

1. It is recurring in nature.

2. It is incurred for maintaining the earning capacity of the business.

Discussion

5.	There are types of expenditure ……(a) One (b) Two(c) Three (d) Four
Answer» The correct answer is: (c) Three

Discussion

6.	Considerable amount spent on advertising is an example of ……expenditure. (a) capital (b) revenue (c) deferred (d) none of these
Answer» (c) deferred

Discussion

7.	…… expenditure is recurring in nature. (a) Capital expenditure(b) Revenue expenditure (c) Capital loss (d) Capital profit
Answer» (b) Revenue expenditure

Discussion

8.	State whether the following expenditures are capital, revenue or deferred revenue. (a) Advertising expenditure, the benefits of which will last for three years. (b) Registration fees paid at the time of registration of a building. (c) Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable.
Answer» (a) Deferred revenue expenditure (b) Capital expenditure (c) Capital expenditure

8.

State whether the following expenditures are capital, revenue or deferred revenue. (a) Advertising expenditure, the benefits of which will last for three years. (b) Registration fees paid at the time of registration of a building. (c) Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable.

Answer»

(a) Deferred revenue expenditure

(b) Capital expenditure

(c) Capital expenditure

Discussion

9.

Distinguish between capital receipt and revenue receipt.

Answer»

S. No.	Characteristics	Capital Receipt	Revenue Receipt
1	Nature	Non- recurring in nature.	Recurring in nature.
2	Size	Amount is generally substantial	Amount us generally smaller.
3	Distribution	These amounts are not available for distribution as profits.	The excess' of revenue receipts over the revenue expenses can be used for distribution as profits.

Discussion

10.

Distinguish between capital expenditure and revenue expenditure.

Answer»

S. No.	Capital Expenditure	Revenue Expenditure
1	Purchase cost of fixed assets.	Maintenance expenses of fixed assets
2	Purchase cost of long term investments.	Insurance premium
3	Expenses to increase the earning the earning capacity of fixed assets.	Postage and stationery.

Discussion

11.	Cost of acquisition of land and building is an example of ……(a) Capital expenditure (b) Revenue expenditure (c) Capital receipts (d) Revenue receipts
Answer» (a) Capital expenditure

Discussion

12.	What is the importance of capital in production?
Answer» Capital has been a very important factor of production even in earlier stages of human development. In the hunting, stage man used some implements to kill wild animals for food. These implements were his capital. Since then capital in some form or the other has played a significant role in the economic development of society. Under capitalism, capital is most significant. It is equally important under communism. Though capital is not a primary factor of production yet its importance is as great as that of any primary factor of production such as land as labour.

Discussion

13.	What do you mean by Gross Capital Formation and Net Capital Formation?
Answer» Every producing unit has to make provisions for the depreciation of the plant and machinery. So, it keeps aside a part of its profits for replacing the warm out machinery and plant. But it sometimes keeps another part of its income away for buying new machinery and equipment when it feels a need to expand itself. So every producing unit not only keeps its capital intact but it tries to expand its productive capacity through making additions to further capital in future. So, the gross capital formation induces two things: Maintaining capital intact. Making further additions to capital equipment to expand the volume of production. While net capital formation includes only one thing, i.e., making further Addition to capital equipment.

13.

What do you mean by Gross Capital Formation and Net Capital Formation?

Answer»

Every producing unit has to make provisions for the depreciation of the plant and machinery. So, it keeps aside a part of its profits for replacing the warm out machinery and plant. But it sometimes keeps another part of its income away for buying new machinery and equipment when it feels a need to expand itself. So every producing unit not only keeps its capital intact but it tries to expand its productive capacity through making additions to further capital in future.

So, the gross capital formation induces two things:

Maintaining capital intact.
Making further additions to capital equipment to expand the volume of production.

While net capital formation includes only one thing, i.e., making further Addition to capital equipment.

Discussion

14.	Distinguish between wealth and capital. Explain the importance of capital in production.
Answer» Difference between capital and wealth Capital is a part of wealth which is used for the production of further wealth. Thus, “All wealth is not capital, Though all capital is wealth”. Professor Benham and Fisher do not find any difference between wealth and capital because both are used for production and consumption. According to these scholars, all wealth is capital because the direct effect of goods is on production of wealth. The only difference lies in use if for example. A car is bought for excursions and enjoyment. It is not capital but if it is bought for doing business it is capital. Importance of capital is production in the modern large scale production system. Capital is a very important factor of production, so important that other factors of production manpower resources of a country cannot be utilised without capital nor can the natural resources be exploited for the use of man. Capital has been a very important factor of production even in the earlier stage of human development in the haunting stage man used some implements to kill wild animals for food. These implements were his capital. Since then capital in some form or the other has played a significant role in the economic development of society. Under capitalism capital is most significant it is equally important under communism. Though capital is not a primary factor of production. Yet its importance is as great as that of any primary factor of production such as land or labour.

14.

Distinguish between wealth and capital. Explain the importance of capital in production.

Answer»

Difference between capital and wealth Capital is a part of wealth which is used for the production of further wealth. Thus, “All wealth is not capital, Though all capital is wealth”.

Professor Benham and Fisher do not find any difference between wealth and capital because both are used for production and consumption. According to these scholars, all wealth is capital because the direct effect of goods is on production of wealth. The only difference lies in use if for example. A car is bought for excursions and enjoyment. It is not capital but if it is bought for doing business it is capital.

Importance of capital is production in the modern large scale production system. Capital is a very important factor of production, so important that other factors of production manpower resources of a country cannot be utilised without capital nor can the natural resources be exploited for the use of man.

Capital has been a very important factor of production even in the earlier stage of human development in the haunting stage man used some implements to kill wild animals for food. These implements were his capital. Since then capital in some form or the other has played a significant role in the economic development of society. Under capitalism capital is most significant it is equally important under communism. Though capital is not a primary factor of production. Yet its importance is as great as that of any primary factor of production such as land or labour.

Discussion

15.

Draw a clear line of demarcation between Capital and Wealth. Mention the point of differences between Land and Capital.

Answer»

Difference between Capital and Wealth:

Capital is that part of the wealth that is used for the production of further wealth. Thus, “all wealth is not capital, though all capital is wealth.” Professor Benham and Fisher do not find any difference between wealth and capital because both are used for production and consumption. According to these scholars, all wealth is capital because the direct effect of goods is on production of wealth. The only difference lies in use. If, for example, a car is bought for excursions and enjoyment, it is not capital, but if it is bought for doing business, it is capital. Differences between Land and Capital

Land	Capital
1. Land is a free gift of nature.	1. Capital is formed through human efforts, i.e., it is a ‘produced’ agent of production.
2. Land lacks mobility.	2. Capital is fairly mobile.
3. The supply of land is fixed and limited in the area. In the event of fluctuations in rent, its supply cannot be increased or withdrawn.	3. Supply of capital can be increased or decreased with human efforts.
4. Rent of land varies.	4. Income from capital is more or less uniform.
5. Land is a permanent factor of production and indestructible. Land does not depreciate or wear out.	5. Capital is perishable and becomes completely worn out and the same needs to be replaced.

Discussion

16.	All capital is the product of(a) Investment (b) Saving (c) Production (d) None of these
Answer» Correct option is (b) Saving

Discussion

17.	By the term capital formation we mean: (a) Fixed Assets (b) Capital Formation (c) Investment (d) None of these
Answer» (b) Capital Formation

Discussion

18.	Define Capital and write its characteristics. Or Clarify the meaning of Capital. Describe the importance of capital in the business.
Answer» Meaning of Capital: Capital generally means money, but in Economics, the term capital means that part of man-made wealth which is used for further production of wealth. In the words of Marshall, “Capital consists of all those kinds of wealth other than free gifts of nature, which yield income.” Characteristics of Capital: The main characteristics of capital are as follows: 1. Capital is man-made factor of production. Under capital, only man-made factors can be included such as machines, buildings etc. On the contrary, the gifts from nature such as land, climate etc. cannot be considered as capital. 2. All wealth cannot be counted as capital, but only that part of the wealth which is helpful in further production is counted as capital. 3. No production is possible without capital. But capital does not produce anything by itself. Production is carried out with the help of capital and it is rightly said that capital is an inactive factor of production. 4. The capital involves the element of time. The capital renders its services for a period of time. This is the reason why the payment of capital is measured in terms of a particular rate, per cent and per year. 5. The capital is subjected to depreciation. The capital used in the form of machinery due to constant use suffers wear and tear. Therefore, this needs to be replaced. 6. Capital possesses the quality of mobility. Capital is the most mobile factor of production. The capitalist can carry his capital anywhere he likes without any difficulty. 7. Capital has the characteristics of elasticity. Supply of capital can be increased or decreased depending upon the situation. 8. Production is possible only due to the use of capital. The application of capital increases the efficiency of labour and productive power of all the factors of production with which it is combined and used.

18.

Define Capital and write its characteristics. Or Clarify the meaning of Capital. Describe the importance of capital in the business.

Answer»

Meaning of Capital: Capital generally means money, but in Economics, the term capital means that part of man-made wealth which is used for further production of wealth. In the words of Marshall, “Capital consists of all those kinds of wealth other than free gifts of nature, which yield income.”

Characteristics of Capital:

The main characteristics of capital are as follows:

1. Capital is man-made factor of production. Under capital, only man-made factors can be included such as machines, buildings etc. On the contrary, the gifts from nature such as land, climate etc. cannot be considered as capital.

2. All wealth cannot be counted as capital, but only that part of the wealth which is helpful in further production is counted as capital.

3. No production is possible without capital. But capital does not produce anything by itself. Production is carried out with the help of capital and it is rightly said that capital is an inactive factor of production.

4. The capital involves the element of time. The capital renders its services for a period of time. This is the reason why the payment of capital is measured in terms of a particular rate, per cent and per year.

5. The capital is subjected to depreciation. The capital used in the form of machinery due to constant use suffers wear and tear. Therefore, this needs to be replaced.

6. Capital possesses the quality of mobility. Capital is the most mobile factor of production. The capitalist can carry his capital anywhere he likes without any difficulty.

7. Capital has the characteristics of elasticity. Supply of capital can be increased or decreased depending upon the situation.

8. Production is possible only due to the use of capital. The application of capital increases the efficiency of labour and productive power of all the factors of production with which it is combined and used.

Discussion

19.	…….. and ………. are essential for making additions to the stock of capital. (a) Saving, Capital (b) Capital, Investment (c) Saving, Investment(d) None of these
Answer» (c) Saving, Investment

Discussion

20.	Identify the following items into capital or revenue.(a) Audit fees paid Rs. 10,000. (b) Labour welfare expenses Rs. 5,000. (c) Rs. 2,000 paid for servicing the company vehicle. (d) Repair to furniture purchased second hand Rs. 3,000. (e) Rent paid for the factory Rs. 12,000.
Answer» (a) Revenue expenditure (b) Revenue expenditure (c) Revenue expenditure (d) Capital expenditure (e) Revenue expenditure

20.

Identify the following items into capital or revenue.(a) Audit fees paid Rs. 10,000. (b) Labour welfare expenses Rs. 5,000. (c) Rs. 2,000 paid for servicing the company vehicle. (d) Repair to furniture purchased second hand Rs. 3,000. (e) Rent paid for the factory Rs. 12,000.

Answer»

(a) Revenue expenditure

(b) Revenue expenditure

(c) Revenue expenditure

(d) Capital expenditure

(e) Revenue expenditure

Discussion

21.	Classify the following items into capital and revenue. (a) Rs. 50,000 spent for railway siding. (b) Loss on sale of old furniture. (c) Carriage paid on goods sold.
Answer» (a) Capital expenditure (b) Capital loss (c) Revenue expenditure

21.

Classify the following items into capital and revenue. (a) Rs. 50,000 spent for railway siding. (b) Loss on sale of old furniture. (c) Carriage paid on goods sold.

Answer»

(a) Capital expenditure

(b) Capital loss

(c) Revenue expenditure

Discussion

22.	Classify the following receipts into capital and revenue. (a) Sale proceeds of goods Rs. 75,000. (b) Loan borrowed from bank Rs. 2,50,000. (c) Sale of investment Rs. 1,20,000.(d) Commission received Rs. 30,000. (e) Rs. 1,400 wages paid in connection with the erection of new machinery.
Answer» (a) Revenue receipts (b) Capital receipts (c) Capital receipts (d) Revenue receipts (e) Capital expenditure

22.

Classify the following receipts into capital and revenue. (a) Sale proceeds of goods Rs. 75,000. (b) Loan borrowed from bank Rs. 2,50,000. (c) Sale of investment Rs. 1,20,000.(d) Commission received Rs. 30,000. (e) Rs. 1,400 wages paid in connection with the erection of new machinery.

Answer»

(a) Revenue receipts

(b) Capital receipts

(c) Capital receipts

(d) Revenue receipts

(e) Capital expenditure

Discussion

23.	Expenditure incurred Rs. 20,000 for trial run of a newly installed machinery will be ……(a) Preliminary expense (b) Revenue expenditure (c) Capital expenditure (d) Deferred revenue expenditure
Answer» (c) Capital expenditure

Discussion

24.	State whether they are capital and revenue. (a) Construction of building Rs. 10,00,000. (b) Repairs to furniture Rs. 50,000. (c) White-washing the building Rs. 80,000. (d) Pulling down the old building and rebuilding Rs. 4,00,000.
Answer» (a) Capital expenditure (b) Revenue expenditure (c) Revenue expenditure (d) Capital expenditure

24.

State whether they are capital and revenue. (a) Construction of building Rs. 10,00,000. (b) Repairs to furniture Rs. 50,000. (c) White-washing the building Rs. 80,000. (d) Pulling down the old building and rebuilding Rs. 4,00,000.

Answer»

(a) Capital expenditure

(b) Revenue expenditure

(c) Revenue expenditure

(d) Capital expenditure

Discussion

25.	Sadhana decides to start a business of selling air – conditioners. She buys different brands of air – conditioners. She also buys a delivery van, some furniture and some tools to fix air- conditioners.She buys some stationery items and cleaning liquid. She spends some amount on advertising her shop. She records the entire amount spent in the trading account. Now, discuss on the following points:(i) Is it correct to record the entire amount spent in the first year of trading in the trading account? What impact will it have on the profit for the year?(ii) What are her fixed assets?(iii) Does she apply accounting concepts? If not which is the concept she does not apply?
Answer» (i) It is not correct to record the entire amount spent in the first year of trading in the trading account. It will be shown as a capital expenditure. For example: furniture and delivery van. (ii) 1. A delivery van. 2. Some furniture. 3. Some tools (iii) No, she does not apply accounting concepts. She does not apply business entity concepts.

25.

Sadhana decides to start a business of selling air – conditioners. She buys different brands of air – conditioners. She also buys a delivery van, some furniture and some tools to fix air- conditioners.She buys some stationery items and cleaning liquid. She spends some amount on advertising her shop. She records the entire amount spent in the trading account. Now, discuss on the following points:(i) Is it correct to record the entire amount spent in the first year of trading in the trading account? What impact will it have on the profit for the year?(ii) What are her fixed assets?(iii) Does she apply accounting concepts? If not which is the concept she does not apply?

Answer»

(i) It is not correct to record the entire amount spent in the first year of trading in the trading account. It will be shown as a capital expenditure.

For example: furniture and delivery van.

(ii) 1. A delivery van.

2. Some furniture.

3. Some tools

(iii) No, she does not apply accounting concepts. She does not apply business entity concepts.

Discussion

26.	Amount spent on increasing the seating capacity in a cinema hall is ……(a) Capital expenditure (b) Revenue expenditure (c) Deferred revenue expenditure (d) None of the above
Answer» (a) Capital expenditure

Discussion

Explore topic-wise InterviewSolutions in .

Revenue expenditure is intended to benefit ……(a) Past period (b) Future period (c) Current period (d) Any period

Write three features of deferred revenue expenditure.

Write any three examples of revenue expenditure.

Write any two features of revenue expenditure.

There are types of expenditure ……(a) One (b) Two(c) Three (d) Four

Considerable amount spent on advertising is an example of ……expenditure. (a) capital (b) revenue (c) deferred (d) none of these

…… expenditure is recurring in nature. (a) Capital expenditure(b) Revenue expenditure (c) Capital loss (d) Capital profit

Distinguish between capital receipt and revenue receipt.

Distinguish between capital expenditure and revenue expenditure.

Cost of acquisition of land and building is an example of ……(a) Capital expenditure (b) Revenue expenditure (c) Capital receipts (d) Revenue receipts

What is the importance of capital in production?

What do you mean by Gross Capital Formation and Net Capital Formation?

Distinguish between wealth and capital. Explain the importance of capital in production.

Draw a clear line of demarcation between Capital and Wealth. Mention the point of differences between Land and Capital.

All capital is the product of(a) Investment (b) Saving (c) Production (d) None of these

By the term capital formation we mean: (a) Fixed Assets (b) Capital Formation (c) Investment (d) None of these

Define Capital and write its characteristics. Or Clarify the meaning of Capital. Describe the importance of capital in the business.

…….. and ………. are essential for making additions to the stock of capital. (a) Saving, Capital (b) Capital, Investment (c) Saving, Investment(d) None of these

Identify the following items into capital or revenue.(a) Audit fees paid Rs. 10,000. (b) Labour welfare expenses Rs. 5,000. (c) Rs. 2,000 paid for servicing the company vehicle. (d) Repair to furniture purchased second hand Rs. 3,000. (e) Rent paid for the factory Rs. 12,000.

Classify the following items into capital and revenue. (a) Rs. 50,000 spent for railway siding. (b) Loss on sale of old furniture. (c) Carriage paid on goods sold.

Classify the following receipts into capital and revenue. (a) Sale proceeds of goods Rs. 75,000. (b) Loan borrowed from bank Rs. 2,50,000. (c) Sale of investment Rs. 1,20,000.(d) Commission received Rs. 30,000. (e) Rs. 1,400 wages paid in connection with the erection of new machinery.

Expenditure incurred Rs. 20,000 for trial run of a newly installed machinery will be ……(a) Preliminary expense (b) Revenue expenditure (c) Capital expenditure (d) Deferred revenue expenditure

State whether they are capital and revenue. (a) Construction of building Rs. 10,00,000. (b) Repairs to furniture Rs. 50,000. (c) White-washing the building Rs. 80,000. (d) Pulling down the old building and rebuilding Rs. 4,00,000.

Amount spent on increasing the seating capacity in a cinema hall is ……(a) Capital expenditure (b) Revenue expenditure (c) Deferred revenue expenditure (d) None of the above