Final answer:
To classify expenditures as capital or revenue related to machinery, consider the nature and benefits of each expense. Purchase price, major overhaul, lubrication before placing in service, sales tax, transportation, and installation are capital expenditures. Ordinary recurring repairs, periodic lubrication, and training can be revenue expenditures depending on their nature.
Step-by-step explanation:
To classify each of the expenditures as a capital expenditure or a revenue expenditure related to machinery, we need to understand the nature of each expense. Capital expenditures are investments made in machinery that offer benefits to the business over a long period, typically more than a year. Revenue expenditures, on the other hand, are expenses incurred in the day-to-day operations of the machinery.
a. Purchase price: This is a capital expenditure since it is the initial cost of acquiring the machinery, which provides long-term benefits.
b. Ordinary recurring repairs to keep the machinery in good working order: This is a revenue expenditure as it is a regular expense in the ongoing operation and maintenance of the machinery.
c. Lubrication before machinery is placed in service: This is a capital expenditure because it is part of the initial setup and preparation of the machinery.
d. Periodic lubrication after machinery is placed in service: This is a revenue expenditure as it is an ongoing expense to maintain the machinery's proper functioning.
e. Major overhaul to extend useful life by three years: This is a capital expenditure because it improves and extends the useful life of the machinery for a significant period.
f. Sales tax paid on the purchase price: This is a capital expenditure since it is associated with the initial acquisition cost of the machinery.
g. Transportation and insurance while machinery is in transit from seller to buyer: This is a capital expenditure as it is related to the acquisition and delivery of the machinery.
h. Installation: This is a capital expenditure as it involves the cost of setting up the machinery and making it operational.
i. Training of personnel for initial operation of the machinery: This can be classified as both a capital and revenue expenditure. If the training is specific to the initial setup and operation of the machinery, it can be considered a capital expenditure. However, if the training is ongoing and part of regular employee development, it would be classified as a revenue expenditure.