28. A company has bought, amongst other things, the following items over the last 12 months:

• New Delivery Vehicle, cost £18,000
• Insurance for the vehicle, cost £1,500
• Stapler, cost £5
• Raw materials used in production, cost £2,500

Which of the following statements is correct?

A. The Vehicle is Capital Expenditure. The Insurance, Stapler and Raw Materials are revenue expenditure.

B. The Vehicle and Insurance are Capital Expenditure. The Stapler and Raw Materials are revenue expenditure.

C. The Vehicle, Insurance and Stapler are all Capital Expenditure. The Raw Materials are revenue expenditure.

D. The Vehicle, Insurance and Raw Materials are all Capital Expenditure. The Stapler is revenue expenditure.

Answer : A

Revenue Expenditure is incurred in the day to day running of the business. Capital expenditure is when a non-current asset is purchased. These items are relatively expensive, and last longer that 1 year. Hence the vehicle is Capital Expenditure. The van will sit on the Statement of Financial Position, and depreciation will be charged to the Income Statement over several years. The insurance lasts only 1 year, and so is revenue. A stapler is a relatively low cost item; even though it may last more than 12 months! And raw materials are used for generating revenue.