Capital & Revenue Expenditure & Receipts
Capital expenditures are those expenditures which increases the value at which a fixed or capital asset may properly be carried on in the books. All such expenditure which results in the acquisition of non current assets which are acquired to be used in the business for the purpose of earning revenue are capital expenditure.
Following are the features of Capital Expenditure
(i) Capital Expenditure increases quantity of fixed assets;
(ii) Capital Expenditure increases quality of fixed assets; or
(iii) Capital Expenditure results in the replacement of fixed assets.
When a new noncurrent asset is purchased it increases the quantity of noncurrent asset. So the amount spent on the purchase of noncurrent asset is treated as capital expenditure.
• Expenditure resulting in the acquisition of long-lived (fixed) assets, e.g., land, building, machinery, furniture, motor car, trademarks.
• Legal charges and stamp duty paid for conveyancing on acquisition of a property.
• Architect fees paid for supervising construction of a property.
• Cost of stand-by equipment and servicing equipment.
• Cost of experimenting when the same results ultimately in acquisition of a patent.
• Money spent on reducing working capital requirement.
The quality of a noncurrent asset is said to have increased when expenditure results in any or some of the following:
(a) When useful life of the noncurrent asset increases;
(b) When capacity of noncurrent asset increases;
(c) When efficiency of the noncurrent asset increases;
The amount spent for earning or providing revenue is termed as revenue expenditure. Revenue expenditures are those expenditure which constitute deduction from income or revenue of the given accounting period. They are treated as an expense.
a) Expenses incurred in the normal course of business, e.g., expenses of administration, expenses incurred in manufacturing and selling products. Examples of such expenses are salaries, rent, insurance, postage, stationery and repairs to assets.
b) Expenses which are incurred to maintain the business or for the smooth running of the business are also known as revenue expenditure. For example replacements for maintaining the existing non current assets, cost of material consumed for manufacturing.
c) Cost of goods Sold.
d) Depreciation on non current assets, interest paid on loans acquired for business.
DEFERRED REVENUE EXPENDITURE
A large expenditure of revenue nature for getting benefit over a number of years is known as deferred revenue expenditure. These are revenue expenditure which are written of over number of years. Till the time they are not completely written of balance is shown in books of accounts as fictitious assets.
These online MCQ Mock tests and MCQ questions includes all main concepts of the chapter (Capital, Revenue and Deferred Revenue Expenditure) in CS Foundation, Financial Accounting and Auditing Computer Based Exam.