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Capital and Revenue Expenditure

The items were classified as either capital or revenue expenditure/receipts. Capital items included purchasing fixed assets like machines, vehicles, and property which provide benefits for multiple years. Revenue items covered regular operating costs like wages, repairs, and sales proceeds which are recurring and their benefits last one year only. Items related to enhancing assets or capacity were capital, while maintenance costs were revenue.

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GodfreyFrankMwakalinga
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209 views23 pages

Capital and Revenue Expenditure

The items were classified as either capital or revenue expenditure/receipts. Capital items included purchasing fixed assets like machines, vehicles, and property which provide benefits for multiple years. Revenue items covered regular operating costs like wages, repairs, and sales proceeds which are recurring and their benefits last one year only. Items related to enhancing assets or capacity were capital, while maintenance costs were revenue.

Uploaded by

GodfreyFrankMwakalinga
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Capital and Revenue

(Receipts and Expenditure)


Objective
 Meaning and features of Capital and Revenue expenditure.

 Classify the expenditure into Capital and Revenue.

 Meaning and features of Capital and Revenue Receipts.

 Classify receipts into Capital and Revenue.

 Deferred Revenue Expenditure


Difference between ‘Expense’ and
‘Expenditure’

 If utility of payment is availed during the


same accounting period –Expense

 If utility of payment is availed for more than


one year –Expenditure
Receipts - the
actual amount of
cash received.

Capital Revenue
Revenue Receipts
 Receipts generated out of routine business transactions

 Earned by selling goods or services.

 Available for meeting all day to day expenses of a business


concern

 Recurring in nature

 E.g.
 Sales proceeds received

 Collection from debtors


Capital Receipts
 Do not arise due to normal course of business.

 Non recurring in nature because not regularly earned by the


business.

 e.g.
 Receipts from sale of fixed Assets

 Receipts on account of raising of capital for business

 Receipts on account of payments received towards

debentures or other loan


Basis of Capital Receipts Revenue Receipts
Difference
Source Do not arise during the Arise during the normal course
normal course of business. of business.

Nature Capital in nature and hence Revenue in nature and hence


are not treated as items of are treated as items of income
income of the business. of the business.

Occurrence These are of non-recurring These are recurring in nature.


in nature.

Examples: Sale of fixed assets, and Sale of goods, rent from


raising of loans tenants, dividend received, etc.
Expenditur
e

Capital Revenue
Revenue Expenditure
 Benefit of it will be available only up to one accounting
year.

 Doesn’t lead to enhancement of earning capacity of the


business.

 Incurred for regular business activities.

 Recurring in nature

 Part of Trading or Profit and Loss account.


Revenue Expenditure
 E.g.
 Expenditure incurred on purchase of raw
material.
 Expenditure incurred on payment of wages,
salaries, office expenses etc.
 Expenditure incurred for the upkeep of an asset.
Capital Expenditure
 Incurred for getting the long term benefit.

 Benefit not exhausted within one accounting year, available


for number of year.

 Incurred to enhance profit earning capacity of business.

 Non recurring in nature.


Capital Expenditure
 E.g.
 Expenditure incurred for construction,
acquisition or purchase of fixed asset.
 Expenditure for installation of fixed asset.
 Expenditure incurred to acquire right to carry on
the business.
Basis of Capital Expenditure Revenue Expenditure
Difference
Purpose Acquisition of fixed assets. Incurred for maintenance of
fixed assets.

Earning Capacity It increases the earning It helps in maintaining earning


capacity of business. capacity of business.
Periodicity of Its benefits are spread over Its benefits accrue only in one
benefit a number of years. accounting year.
Placement in Balance Sheet and shown Trading and P/L a/c and shown
financial statement. as an item of asset. on debit side of either of the a/cs.
Occurrence of Non recurring in nature Recurring expenditure.
Expenditure
Example: Acquisition of fixed asset Payment of Salaries, carriage etc
such as building, plant and
machinery
 Whether expenditure is capital or revenue it
depends upon its purpose and nature of
business
Difference between Revenue
Expenditure and Capital
Expenditure
 Expenses incurred to run the  Expenses not fully
business in one accounting consumed within an
period and the benefit of accounting period, or which
which is consumed in same increase the earning
accounting period. capacity or decrease the
future costs.
 Recurring in nature
 Non recurring in nature.
For the business of J Charles, wholesale chemist, classify the following
between ‘capital’
and ‘revenue’ expenditure:
(a) Purchase of an extra van.
(b) Cost of rebuilding warehouse wall which had fallen down.
(c) Building extension to the warehouse.
(d) Painting extension to warehouse when it is first built.
(e) Repainting extension to warehouse three years later than that done in (d).
(f ) Carriage costs on bricks for new warehouse extension.
(g) Carriage costs on purchases.
(h) Carriage costs on sales.
(i) Legal costs of collecting debts.
( j ) Legal charges on acquiring new premises for office.
(k) Fire insurance premium.
(l) Costs of erecting new machine.
For the business of H Ward, a food merchant, classify the
following between ‘capital’ and
‘revenue’ expenditure:
(a) Repairs to meat slicer.
(b) New tyre for van.
(c) Additional shop counter.
(d) Renewing signwriting on shop.
(e) Fitting partitions in shop.
(f ) Roof repairs.
(g) Installing thief detection equipment.
(h) Wages of shop assistant.
(i) Carriage on returns outwards.
( j ) New cash register.
(k) Repairs to office safe.
(l) Installing extra toilet.
Classify the following expenses either as
capital expenditure or revenue
expenditure:
(a) Electricity bill for year
(b) Costs of new heating system
(c) Installation costs of new heating
system
(d) Carriage inwards on new boiler for
heating system
(e) Repair costs of heating system
(f ) Upgrade of boiler in three years’ time.
In a fast food outlet divide the following costs
according to whether they are capital expenditure
or revenue expenditure:
(a) Purchase of deep fat fryer
(b) Painting logo outside new premises
(c) Rental charge for premises
(d) Purchase of buns for burgers
(e) Delivery charge for deep fat fryer
(f ) Interest charge on loan taken out to purchase
deep fat fryer
(g) Part-time staffing costs
(h) Purchase of drinks machine.
Craig Watson is the ITC manager for a large company. He is
responsible for installing a new
computer suite. The following costs are associated with this
installation. He is unsure whether
to classify the costs associated as capital or revenue
expenditure. Craig asks for your help in
classifying these costs:
(a) Cost of twelve new personal computers
(b) Delivery cost of new computers
(c) New desks and chairs required for suite
(d) Power costs associated with running computers for one
year
(e) Annual license cost for software
(f ) Stationery for printers
(g) Cleaning costs of new suite
(h) Installation cost of new wireless system.
Classify the following into expenditure or receipt and whether
they are of a capital or revenue
nature:
(a) Sales of mushy peas by a fish and chip shop
(b) Purchase of potato chipping machine by fish and chip shop
(c) Delivery charge on purchase of shower units by a bathroom
retailer
(d) Repainting logo on side of existing business van
(e) Painting premises newly finished
(f ) Payment to staff installing new machine in factory
(g) Payment to staff repairing existing machine in factory
(h) Purchase of a car by a second-hand car dealer
(i) Sale of van by home delivery business
(j) Rental income earned by dry cleaning business.

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