Which one of the following statements is not true ?

This question was previously asked in
UGC Paper 2: Commerce July 2018
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  1. An expenditure intended to benefit current year is revenue expenditure.
  2. Amount paid for acquiring goodwill is capital expenditure.
  3. Wages paid for installation of a new machine is usually debited to wages account.
  4. Revenue expenditure is not intended to benefit future period.

Answer (Detailed Solution Below)

Option 3 : Wages paid for installation of a new machine is usually debited to wages account.
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UGC NET Paper 1: Held on 21st August 2024 Shift 1
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Detailed Solution

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An expenditure intended to benefit the current year is revenue expenditure- True

Revenue expenditure is not intended to benefit future period- True.

Explanation:

Revenue Expenditure

  1. Revenue expenditures are short-term expenses used in the current period or typically within one year.
  2. Revenue expenditures include the expenses required to meet the ongoing operational costs of running a business, and thus are essentially the same as operating expenses.
  3. They are intended to benefit the current year and not in the future years

Amount paid for acquiring goodwill is capital expenditure- True

Explanation:

  1. Goodwill is an intangible asset, but also a capital asset. 
  2. Goodwill is classified as a capital asset because it provides an ongoing revenue generation benefit for a period that extends beyond one year.
  3.  Capital assets are any assets that are not regularly sold as part of a company's ordinary business operations but owned because of their ability to help the company generate profit. 

Wages paid for the installation of a new machine is usually debited to wages account- False.

Explanation:

  1. Capital expenditure or capital expense is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. 
  2. Wages paid on the installation of machinery is treated as a capital expenditure. The journal entry for the same is

                              Machinery A/C ....Dr 

                                               To Cash/Bank A/C. 

Therefore, Option 3 is the right answer.

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