Question 1 Introduction
When preparing the financial statements of a sole trader the closing inventory figure is deducted from purchases in the trading section of the income statement and is also shown as a current asset in the statement of financial position.
Capital expenditure includes the cost, delivery and installation of non-current assets but not any subsequent improvements to those assets.
Revenue expenditure includes the maintenance of non-current assets, selling and distribution costs and the administration costs of the business.
A car garage spends £250,000 revamping its premises; this comprises a £20,000 bill for repairing the roof of the existing garage and £230,000 for a new extension. This will all be capital expenditure.
A publishing company invests in a new computer system costing £15,000 plus £1,200 for delivery and installation. It also signs an annual maintenance contract for the system costing £3,000 a year. The total capital expenditure is £16,200.
When preparing the financial statements of a sole trader the closing inventory figure is deducted from purchases in the trading section of the income statement and is also shown as a current asset in the statement of financial position.
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