Your manager has asked you to advise your client Kofi Gyato, owner and director of Kofi Gyato Limited, on the implications of the proposed transaction. Your client has identified an opportunity to develop his business by manufacturing the products which he sells. To do this he would need to buy a machine which will have an expected life of ten years. He has received this quotation for the machine. GHȼ Price of machine 70,000 Delivery and installation 3,500 Commissioning costs 1,500 Annual maintenance costs 3,500 Required: Prepare a report to your client. Your report should: (a) Explain the difference between capital and revenue expenditure, and how each type of expenditure affects the accounts of a business. (b) Indicate which of the costs of the machine should be considered as capital cost and which should be considered as revenue cost. (c) Define depreciation and explain how the accounting entries for depreciation affect each element of the accounting equation.
Your manager has asked you to advise your client Kofi Gyato, owner and director of Kofi Gyato Limited, on the implications of the proposed transaction.
Your client has identified an opportunity to develop his business by manufacturing the products which he sells. To do this he would need to buy a machine which will have an expected life of ten years. He has received this quotation for the machine.
GHȼ
Price of machine
70,000
Delivery and installation
3,500
Commissioning costs
1,500
Annual maintenance costs
3,500
Required:
Prepare a report to your client. Your report should:
(a) Explain the difference between capital and revenue expenditure, and how each type of expenditure affects the accounts of a business.
(b) Indicate which of the costs of the machine should be considered as capital cost and which should be considered as revenue cost.
(c) Define
(d) Indicate:
(i) What the annual charge against profit will be:
(ii) One way in which the statement of comprehensive income will change if this development takes place.
Step by step
Solved in 2 steps
Indicate:
(i) What the annual charge against profit will be:
(ii) One way in which the statement of comprehensive income will change if this development takes place.
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