Part C
Question 1
Mr. Kenny is an accountant at AF Textile, and he plays squashwith Mr. Zuni, the CEO of AF Textile. The CEO wanted to decreasenet income with the objective to pay lesser tax. Mr. Kenny waseager to get into Mr. Zuni’s elite social circle; he boasted to Mr.Zuni that he knew some accounting tricks that could decreasecompany income by simply disclosing company’s capital expenditureas their revenue expenditure. At the end of the year, Mr. Kennychanged the debits from “capital expenditures” to “revenueexpenditure” on several transactions. Later, Mr. Zuni achieved hisobjective of paying lesser tax, and the manipulations were neverdiscovered.
Required:
Differentiate between Capital Expenditure and RevenueExpenditure. (4 marks)
How did the change in journal entries affect the net income andnet assets of the company at year-end? (3 marks)
