Capital expenditures are for fixed assets, which are expected to be productive assets for a long period of time. Revenue expenditures are for costs that are. Identify subsequent expenditure that may be capitalised, distinguishing between capital and revenue items. ACCA FA D4c Capital and revenue. Expenditure on fixed assets may be classified into Capital Expenditure and Revenue Expenditure. The distinction between the nature of capital and revenue.
|Published:||12 September 2014|
|PDF File Size:||46.10 Mb|
|ePub File Size:||12.60 Mb|
The purchase of large, long-term assets that depreciate over time is a capital expenditure.
CAPITAL AND REVENUE ITEMS – BASIC 2 TECH
You make these purchases to provide the assets or infrastructure your company needs to grow its business and generate more profits.
Many companies use capital and revenue items financing or retained earnings to finance capital expenditures, but some use equity financing. Revenue expenditures is money spent on the daily running expenses of the business.
A revenue expenditure is an amount that is expensed immediately; thereby being matched with revenues of the current accounting period.
Routine repairs are revenue expenditures because they are charged directly to an capital and revenue items such as Repairs and Maintenance Expense.
Revenue expenses can be fully tax-deducted in the same year the expenses occur. When you immediately record your expenses, you are matching them with the revenue those expenses helped produce.
CAPITAL AND REVENUE ITEMS
For example, labor and materials are expenses incurred to provide the services reflected in the revenue they are matched against.
There are two types of revenue expenditure: Maintaining a revenue generating asset.
This includes repair and maintenance expenses, because they are incurred to support current operations, and do not extend the life of an asset or improve it. This is all day-to-day expenses needed to operate a business, such as sales salaries, rent, office supplies, and utilities.
When Revenue Expenditures are not regarded as Revenue Expenditures? There are some items capital and revenue items expenditure which are revenue by nature, yet they are not regarded as revenue expenditure.
Such expenditures may be divided into two groups: Rs 50, are a profit of capital nature. Another example, suppose a company issues its shares of the face capital and revenue items of Rs for Rs each, i.
The difference between capital and revenue items of expenditure and income
Rs 10 is capital profit. This amount is utilised for meeting Capital losses. Revenue Profits are earned in the ordinary course of business. Revenue profits appear in the Profit and Loss Account.
For example, profit from sale of goods, income from investments, discount received, Interest Earned etc. Capital losses occur when selling fixed capital and revenue items or raising share capital. A building purchased for Rs 2, 00, is sold for Rs 1, 50, Rs 50, are a capital loss.
ACCA FR (F7) Notes: B1b. Capital and revenue items | aCOWtancy Textbook
Shares of the face value of Rs issued at Rs 95, i. The amount of discount is a capital loss. Capital Loss is not shown in the Profit and Loss Account.
They are shown in the asset side of Balance Sheet.