Question

Which of the following items should be treated as revenue items in an entity's financial statements?

1) Payment of local property tax
2) Purchase of premises
3) Alteration of premises to configure them to be ready for use in the business
4) External audit fee

Answer 1

Revenue items in an entity's financial statements include external audit fees received, while property tax payments, purchase of premises, and alteration of premises are not considered revenue items.

Step-by-step explanation:

In an entity's financial statements, revenue items typically represent the income earned by the entity. Based on the given options, the items that should be treated as revenue items are:

1. Payment of local property tax: This is a tax paid by the entity and is not considered as revenue. It is an expense for the entity.
2. Purchase of premises: This is a capital expenditure and not a revenue item. It represents the acquisition of a long-term asset for the entity.
3. Alteration of premises to configure them for use in the business: This is also a capital expenditure and not a revenue item. It represents the investment made to improve the premises.
4. External audit fee: This is considered a revenue item as it represents the income received by the entity for providing audit services to other organizations.

Therefore, the correct answer is option 4) External audit fee as it should be treated as a revenue item in an entity's financial statements.