Question

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7. TechCom has provided the following selected account information, in alphabetical order, from its adjusted trial balance at October 31, 2017. All balances are normal. Accounts receivable $16,400 Accumulated depreciation, equipment 3,800 Accumulated depreciation, patent 3,100 Accumulated depreciation, vehicles 13,800 Allowance for doubtful accounts 800 Cash 9,000 Equipment 25,000 Land 48,000 Patent 20,100 Vehicles 62,000 Required: Prepare the Asset section of the classified balance sheet for TechCom at October 31, 2017 (10 marks) 8. What characteristics of a property, plant, and equipment item make it different from other assets, such as accounts receivable or inventory? (2 marks) 9. What is the impact on the income statement and on the balance sheet between a subsequent expenditure treated as a revenue expenditure versus a capital expenditure? (3 marks)

Answer 1

Solution:

7.

Balance sheet of Techcom at 31 October 2017

Assets	Subtotal	Total Amount
Current Assets
Cash		9000
Accounts Receivable - Allowance for doubtful debts	16400 (800)	15600
Non-current Assets
Fixed Assets
Equipment - Accumulated Depreciation	25000 (3800)	21200
Vehicle - Accumulated Depreciation	62000 (13800)	48200
Land		48000
Intangible Assets
Patents - Accumulated Depreciation	20100 (3100)	17000
Total Asset		159000

8. Plant, property equipment are Fixed assets, whereas items like account receivable or inventory are current assets.

Current Assets: It refers to those assets which can be converted into cash within 1 year. These assets are more liquid in nature.

Non-current assets: It refers to those assets which take more than 1 year to get converted into cash. These assets are less liquid in nature.

9. Revenue Expenditure: The expenditure which helps in revenue generation. These expenses are related to operational activities. Revenue expenditures are charged for the current year.

These expenses are recorded in the present year's Income statement and indirectly transferred to Balance sheet through Retained earning (as retained earnings are the net figure of the income statement)

Capital Expenditure: The expenditure on assets which contributes to the production and which has a long life. Benefit from such assets cannot be consumed in one year. Therefore part of the value of the asset is written off as depreciation in the form of the contribution made by such assets in operations or revenue generation.

Capital expenditure is recorded in the balance sheet in the form of assets. Every year part of this is written off as depreciation and recorded in the income statement as an expense and deducted from the asset in the balance sheet.