Reference no: EM132545496

The following costs were also incurred by Ali company Ltd during the financial year ended 30June 20X7:

a) Interest on loan to purchase microcomputer.

b) Cost of software for use with the microcomputer.

c) Cost of customizing the software for use in Napa Ltd.'s business.

d) Cost of paper used by the computer printer.

e) Wages of computer operators.

f) Cost of ribbons used by the computer printer.

g) Cost of adding extra memory to the microcomputer.

h) Cost of floppy disks used during the year.

i) Costs of adding a manufacturer's upgrade to the microcomputer equipment.

j) Cost of adding air conditioning to the computer room.

Required:

Question 1. Classify each of the above as capital expenditure or revenue expenditure.

Question 2. What will be consequences if an accountant wrongly treats capital expenditures as revenue expenditure? Support you answer with a rationale.