Download Capital and revenue expenditure and more Study notes Accounting in PDF only on Docsity!
CapitalandRevenueItems
Isimportanttomakeacleardistinction betweenitemsofcapitalnatureandrevenue natureforthepreparationoftradingandprofit andlossaccountandthebalancesheet,Ifany item iswronglyclassified,Aeifanyitem of revenuenatureistreatedascapitalitem orvice- versa,theascertainmentofprofitorlosswillbe incorrect. Thevariouscapitalandrevenueitemsareasfollows CapitalExpenditure Itismoneyspentonthepurchaseofpermanent orfixedassetforuseinthebusinessandnot forimmediateresaleoronthepermanent improvementoforadditiontoorextensionof anexistingassetwithaviewtoincrease
theearningcapacityofthebusinessenterprise. ¢.g.Purchaseofplantandmachineryetc. Capitalexpenditureasopposedtorevenue expenditure,isgenerallyofaone-offkindand itsbenefitisderivedoverseveralaccounting periods.Capitalexpendituremayinclude purchasecost,deliverycosts,legalcharges, installationcosts,upgradationcostsand replacementcosts. Ascapitalexpenditureresultsinincreaseinthe fixedassetoftheentity,theaccountingentryis asfollows DebitFixedAssetsCreditToCash/Payable
RevenueExpenditure
Itismoneyspenton
materialsandservices,
whichareconsumedbya
businessenterprisein
carryingoutnormalbusiness
activitiesandmaintenance
offixedassets.Thedirect
benefitofsuchexpenditure
isexhaustedinthe
accountingperioditself.eg.
costoffinishedgoodsor
establishmentcostetc.
Revenueexpenditures
compriseofrepaircosts,
maintenancecharges,
repaintingcosts,renewal
expenses.Asrevenuecosts
donotform partofthefixed
assetcost,theyare
expensedintheincome
statementintheperiodin
whichtheyareincurred.
