Capital and Revenue Expenditure

CAPITAL AND REVENUE EXPENDITURE

Capital Expenditure- Capital Expenditures are those expenses which are paid to acquire fixed assets (both tangible and intangible) benefit of which does not end in a financial year but the business uses it for many years.

Revenue Expenditure- Revenue expenditures are incurred to meet the expenses which are essential to run the business. Benefit of it may extend maximum for a period of 1 year.

Deferred Revenue Expenditure-Deferred revenue expenditure is that expenditure for which payment has been made or a liability incurred but which is carried forward on the assumption that benefit of it will be received in a subsequent period.

Capital Receipt- Capital receipt is the money received other than the normal business activities

Examples- Issue of shares and debentures, sale of shares etc.

Capital Profit- Capital profit is the profit which arises out of sale of fixed assets. Another example of capital profit is premium received on issue of shares and debentures.

Revenue Profit- Revenue profit is the profit which arises out of normal and regular business activities.

Some Examples of Capital Expenditure

1. Purchase of any fixed asset including trade mark, patent right goodwill.

2. Payment of carriage to bring the asset.

3. Installation cost.

4. Repairing or overhaul expenses on any second hand asset.

5. Legal expenses to acquire fixed asset such as registration expenses, fees paid to lawyer.

6. Brokerage paid to acquire any fixed asset.

7. License fee to run a cinema hall.

8. Extension of fixed assets such as addition to building.

9. Change of mazor part of the machine.

10. Cost of temporary hut necessary at the site in the process of the construction of the premises.

Some important examples of revenue expenditure

1. Interest on loan taken for acquisition of a fixed asset.

2. Legal expenses to defend a suit claiming against the fixed property of the company

3. Repairs on existing assets.

Some examples of deferred revenue expenditure

1. Heavy advertising expenses

2. Preliminary expenses

3. Discount on issue of shares and debentures

4. Underwriting commission