Bolderson Products have recently built an exten sion to their factory on waste ground which had cost £41 000.

Old buildings standing on the waste ground were demolished at a cost of £5000. The company had employed direct labour to build the extension under the supervision of the factory manager. Costs involved included:

£

Hire of labour force 24000 Materials used 4800 Allocation of factory manager's salary I 500 In addition, disruptions caused by the building work meant that the factory workforce had been working additional overtime at a cost of £ 18000. Overtime rates are 150 per cent of normal rate s.

(a) Distinguish between the above cost s according to whether each represents capital or revenue expenditure (or neither).

(b) Immediately after the extension had been built , it was sold to another manufacturer at a cost of £ 125000. Explain whether the gain on disposal, if any , should be included in the profit for the year.

(c) Provide journal entries to record the transactions in

(a) and

(b) above.