Distinguish between capital and revenue expenditure

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Reference no: EM131385645

(a) Distinguish between capital and revenue expenditure.

(b) Drake Ltd took delivery of a computer network on 1 July 2016, the beginning of its financial year. The list price of the equipment was £9,999 but Drake Ltd was able to negotiate a price of £8,000 with the supplier.

Flowever, the supplier charged an additional £680 to install and test the equipment. The supplier offered a 5% discount if Drake Ltd paid for the equipment and the additional installation costs within seven days. Drake Ltd was able to take advantage of this additional discount. The installation of special electrical wiring for the network cost £220.

After initial testing certain modifications costing £398 proved necessary. Staff were sent on special training courses to operate the network and this cost £1,980. Napa Ltd insured the network against fire and theft at a cost of £49 per annum. A maintenance agreement was entered into with Callus pic.

Under this agreement Callus promised to provide 24-hour breakdown cover for one year. The cost of the maintenance agreement was £700.

Reference no: EM131385645

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