ExpertMedium2 marksMultiple Choice
ACCA · Question 03 · Recording transactions and events
Section A
SolarTech Manufacturing recently upgraded its primary assembly line. Which TWO of the following expenditures should be classified as capital expenditure?
Section A
SolarTech Manufacturing recently upgraded its primary assembly line. Which TWO of the following expenditures should be classified as capital expenditure?
Answer options:
A.
Routine maintenance of the old conveyor belts prior to disposal
B.
Installation costs of the new robotic arms
C.
Cost of upgrading the factory's electrical grid to handle the new machinery
D.
Training costs for staff to operate the new robotic arms
How to approach this question
Determine which costs are directly attributable to bringing the asset into working condition (capital) versus ongoing or non-controlled costs (revenue).
Full Answer
Capital expenditure includes the initial purchase price and any directly attributable costs to bring the asset to its working condition (e.g., installation, site preparation). Routine maintenance and staff training are revenue expenditures.
Common mistakes
Many students incorrectly capitalize staff training costs, forgetting that a company cannot 'control' its employees in an accounting sense.
Practice the full ACCA FA — Financial Accounting Practice Exam 1
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