Question 5

Required:

1. State why it is important to distinguish between capital expenditure and revenue expenditure, and briefly explain the accounting treatment of each type of expenditure.

2. State one example each of capital expenditure and revenue expenditure.
3. Nyamekye Limited is a trading company making up its accounts regularly to 31 December each year.

At 1 January 2017 the following balances existed in the records of Nyamekye Limited

	GH000
Freehold land -cost	1,000
Freehold buildings- cost	500
Accumulated depreciation provided on building to 31/12/2016	210
Office equipment- cost	40
Accumulated depreciation provided on office equipment to 31/12/2016	24

The companys depreciation policies are as follows:

• Freehold land- no depreciation
• Freehold buildings- depreciation provided at 2% per annum on cost on the straight line basis.
• Office equipment- depreciation provided at 12% per annum on the straight line basis.

A full years depreciation is charged in the year of acquisition of all assets and none in the year of disposal. During the two years to 31 December 2018 the following transactions took place.

1. Year ended 31 December 2017

1. 10 June: Office equipment purchased for GH16,000. This equipment was to replace some old items which were given in part exchange. Their agreed part exchange value was GH4,000. They had originally cost GH8,000 and their carrying amount was GH1,000. The company paid the balance of GH12,000 in cash.

2. 8 October: An extension was made to the building at a cost of GH50,000.

2. Year ended 31 December 2018

1. Office equipment which had cost GH8,000 and with a carrying amount of GH2,000 was sold for GH3,000.

In preparing the financial statements at 31 December 2018 it was decided to revalue land upwards by GH200,000 to reflect a recent survey.

Required

Write up the necessary ledger accounts to record these transactions for the two years ended 31 December 2018. Cost and accumulated depreciation accounts are required.

(You should not combine cost and depreciation in a single account).