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Question : Buying current assets like inventory is classified as capital or revenue expenditure?
Question : Capital is opening capital plus net profit less drawings. What if more capital is introduced at the middle or end of the period(year end)? It will go to next year’s capital?
Question : Besides depreciation, what other expenses can be non cash? Can you give examples.
Thank you very much for your help sir 🙂
Buying inventory is revenue expenditure (when you buy it, it is purchases).
Capital at the end of the year is opening capital + purchases – drawings + capital introduced during the year.
It depends why you are asking the third question – for the purposes of statements of cash flow then the only non-cash items you will have are depreciation, profit/loss on sale of non-current assets, and revaluations.
All of the above questions are dealt with in our free lectures – our lectures are a complete course for Paper F3 and cover everything needed to be able to pass the exam well.
Thank you very much for your help sir. Yes i have been watching your awesome lectures.
I was a little confused about capital and revenue expenditure though, because you said capital expenditure was expenditure to buy assets. Is it just non current assets? Because inventory too is classified as a current asset in the balance sheet? And revenue expenditure was for paying expenses….
Except purchases is an expense account and inventory is just considered as purchases i suppose? (and cost of sales is opening inv plus purchases less closing inv)Capital expenditure is buying non-current assets.
Inventory is simply what is remaining of the purchases, which are an expense 🙂
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