A luxury villa has recently been acquired by Luxury Services for hire to holiday parties. The cost of acquisition was £110 000 and included £ I0000 for 10 years use of private beach facilities and £40000 for the land surrounding the villa. Costs of modernising and renovating the villa amounted to £40000 including £ 15000 paid for new furniture and £5000 on routine maintenance. By the end ofthe first year of rental the following additional costs had been incurred:

Rental of beach buggi es for clients Installation of security system in line with the requirements of the insurers Purchase of beach furniture Replacement of fittings which had been stolen, lost or damaged by clients Required

(a) Distinguish between all the above menti oned items according to whether each should be classified as a capital or a revenue expendit ure. Give reason s for each classification.

(b) Explain whether the items identified as capital expendi tures should be dealt with separa tely or jointly for depreciation purposes.