Topics covered: Business expenditure
- Revenue expenditure
- Capital expenditure
Mr Willy owns Excellent Furniture Mart. Excellent Furniture has two divisions; manufacturing and selling. Willy procures raw wood from local timber merchants. However, for special orders, Willy imports from Malaysia. Excellent Furniture supplies furniture to schools, colleges, government, and private offices as per their requirements.
Though Excellent Furniture owns its own buildings for manufacturing and selling, Willy rented around 10 office spaces around Mumbai for quick and prompt customer services. Many employees have permanent contract with Excellent Furniture who receives monthly salaries and loyalty bonus as per their performance. Sales people receive additional bonus as an incentive to meet higher targets. Excellent furniture also employs part-time workers based on the level of demand and urgency of delivery. They are mostly paid daily wages. Apart from salary, wages and bonus, Willy also pays other regular expenses like office insurance, utility bills, loan interest, repairs and maintenance.
Recently Excellent Furniture borrowed long term loan from a commercial bank to buy cutting and polishing machines, delivery vans, and computer systems, as demand for their furniture has been growing.
Questions to answer:
Question 1: With reference to Excellent Furniture, explain the term revenue expenditure. [ 2 marks]
Question 2: With reference to Excellent Furniture, explain the term capital expenditure [ 2 marks]
Question 3: Explain two differences between revenue expenditure and capital expenditure [ 4 marks]
