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.

Price of machine GH 70,000

Delivery and installation GH 3,500

Commissioning costs GH 1,500

Annual maintenance costs GH 3,500

Required: Prepare a report to your client. Your report should:

1. (a) Explain the difference between capital and revenue expenditure, and how each type of

   expenditure affects the accounts of a business.

2. (b) Indicate which of the costs of the machine should be considered as capital cost and

   which should be considered as revenue cost.

3. (c) Define depreciation and explain how the accounting entries for depreciation affect each

   element of the accounting equation.

4. (d) Indicate:

   1. (i) What the annual charge against profit will be:

   2. (ii) One way in which the statement of comprehensive income will change if this

      development takes place.