Personal Expenditure Test Questions

1. Explain the distinction between personal fixed expenditure and personal variable expenditure.

2. Is the rent payable on furnished accommodation fixed or variable?

3. Distinguish between revenue and capital expenditure. How would you classify the hire purchase instalments on the purchase of a new car?

4. Give one example of expenditure that is financed out of current income but is nevertheless capital expenditure.

5. What is a consumer durable?

6. Consider the advantages and disadvantages in times of inflation of purchasing assets on an instalment plan instead of (a) renting or hiring, and (b) saving up out of income to buy for cash later on.

EXERCISES

A You buy a second-hand car for £520 cash. You estimate that its useful life will be five years, and that at the end of that time it will be worthless. You also anticipate that prices and your own income will rise by 12.5% for each of the next five years. Prepare a table showing how much cash to set aside out of income each year to pay for a replacement. Ignore the rising cost of servicing and repairs.

B You estimate that out of your take-home net pay you are spending the following amounts each month:

Accommodation and food

(living at home) 42

Budget account at clothing

outfitter 12

HP on motorbike 22

Petrol and oil 15

Midday meals 15

Spending money 20

Which items are capital expenditure and which revenue expenditure? Which items would you classify as variable and which fixed?

How much per month are you saving, and how do you plan to replace the motorbike when it wears out in seven years' time.?


Purchase of TV Set

Buying a car is capital expenditure whether you buy it entirely for cash or by a down payment with the balance in monthly instalments on hire purchase. Again, the fact that the monthly instalments are financed out of current income does not make the acquisition of the asset an item of current expenditure.

The same principle applies with a TV set: you can buy it for cash, or by hire purchase or credit agreement. But there is a third method of acquiring the use of a TV set - or indeed of many similar items of capital equipment - you can hire it for a simple rent. The equipment will never become... see: Purchase of TV Set


Personal And Business Finance 2018

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