CAPITAL AND REVENUE EXPENDITURE CAPITAL EXPENDITURE Expenditure means the amount spent.

Any expenditure incurred for the following purposes is capital expenditure: a) For acquiring fixed assets such as land, buildings, plant and machinery, furniture and fittings and motor vehicles. These assets should not be acquired with a view to resell them at a profit during the year but to be retained in the business for more than a year. The cost of fixed asset would include all expenditure up to the time the asset becomes ready for use. b) For making improvements and extensions to the fixed asset e.g., additions to buildings. c) For increasing the earning capacity of a business or for reducing the cost of manufacture, administration or distribution in a business e.g., expenditure incurred in removing the business to a central locality or compensation paid to a retrenched employee. d) For raising capital money for the business such as brokerage paid for arranging loans, discount on issue of shares and debentures, underwriting commission etc. All capital expenditure represents either an assets or liability and is shown in the balance sheet. LIST OF CAPITAL EXPENDITURE The following is a list of the usual items of capital expenditure. 1. Cost of good will 2. Freehold land and buildings and the legal charges incurred in this connection. 3. Cost of lease 4. Cost of machineries, plants, tools, fixtures. etc 5. Cost of trade marks, patents, copy rights, designs etc 6. Cost of car, lorry etc 7. Cost of installation of lights and fans 8. Cost of any other assets acquired by way of equipment 9. Erection cost of plant and machinery 10. Cost of addition to existing assets 11. Structural improvements and alterations in the existing assets 12. Expenses for developments in case of mines and plantations 13. Expenses for administration incurred for construction and equipment of any industrial enterprise 14. Expenses incurred in experimenting which finally result in the acquisition of a patent or other rights

REVENUE EXPENDITURE Expenditure will be treated as revenue if it is incurred for the following purpose: a) Expenditure for purchasing floating assets. e.g. cost of goods, raw material and stores. b) Expenditure incurred by maintaining fixed assets in proper working order e.g., repairs to plant and machinery, buildings, furniture and fittings etc c) Expenditure incurred for meeting day to day expenses of operating a business e.g., salaries, wages, rent, rates, taxes, stationery, postage etc. All the revenue expenditure has to be deducted from the income earned by the organization. That is to say, all revenue items will be taken to the profit & loss account. LIST OF REVENUE EXPENDITURE The following is a list of usual items of revenue expenditure: a) Expenses incurred for the ordinary administration and carrying on the operations of a business b) Expenses for repairs c) Cost of goods for resale d) Cost of raw materials and stores acquired for consumption in course of manufacturing e) Wages paid for manufacture of products for sale f) Expenses for the manufacture and distribution of the finished product g) Loss from wear and tear and obsolescence of assets h) Depreciation of lease assets i) Interest on loans borrowed for business j) Loss from sale of fixed assets k) Fees for renewal of patent rights etc l) Up keep and maintenance of motor car and van m) Maintenance of fan and lights n) Book value of assets discarded or totally damaged or destroyed by fire or other reasons

DIFFERENCE BETWEEN CAPITAL EXPENDITURE AND REVENUE EXPENDITURE. Capital expenditure 1. Its effect is long term i.e. it is not exhausted within the current accounting year- its benefit is enjoyed in future years also. 2. An asset is acquired or the value of an asset is increased as a result of this expenditure. 3. Generally, it has physical existence i.e. it can be seen with eyes. 4. It does not occur again and again it is non-recurring and irregular. 5. This expenditure improves the position of the concern. 6. A portion of this expenditure is shown in trading and profit & loss account or income & expenditure account as depreciation. Revenue expenditure 1. Its effect is temporary i.e. it is exhausted within the current accounting year.

2. Neither an asset is acquired nor is the value of an asset increased. 3. It has no physical existence i.e. it cannot be seen with eyes. 4. It occurs repeatedly it is recurring and regular. 5. This expenditure helps to maintain the concern. 6. The whole amount of this expenditure is shown in trading and profit & loss account or income & expenditure account. But deferred revenue expenditure and prepaid expenses are not shown. 7. It does not appear in balance sheet. Deferred revenue expenditure, outstanding expenditure, outstanding expenses and prepaid expenses are, however, temporarily shown in balance sheet. 8. It reduces revenue e.g. payment of salaries to employees decreases revenue.

7. It appears in balance sheet until its benefit is fully exhausted.

8. It does not reduce the revenue of the concern. Purchase of fixed asset does not affect revenue.