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CAPITAL V/S
REVENUE
TRANSACTIONS

Capital Expenditures
Generates Economic Benefits for more than
Accounting Period
Occurred irregularly, once in a while (may be of
Big amount) Financed from long term Capital
Results into a Fixed Asset
Increase the efficiency/earning capacity of
an existing asset.

Capital Expenditures

Fixed assets means the capital expenditures from

which a future economic benefit arises

Incidental expenses incurred till the assets is put to use

These expenditures are shown as Assets in Balance

Sheet

Incurred for growth of the business.

Written off in P&L Accounts (as per the accrual of its

benefits)

Examples
Purchase of a furniture
Wages for a construction of a building.
Building a floor of an existing building
Installation expenses of a Machine.
Legal fees to acquire a property

Revenue Expenditure
Businesss recurring/regular expenditures
Benefit is for a single accounting period
Necessary to smoothly run the business
financed from the Working Capital
Shown in Trading, P& L A/c (Expenses)

Examples
Payment of salaries/ rent/ purchases
Annual White washing of office
Stationery purchases by a Stationery dealer

Bad debts

Capital V/s Revenue

Expenditures
Nature of Business

Purpose of expenses

Recurring nature of expenditure

Effect on Revenue generating capacity

Materiality of amount involved

Capital Reciepts
These are the long term receipts

Irregular in nature

Not the normal/revenue business activities

Creates long term liabilities (Balance Sheet)

Examples
Issue of Share Capital/Debentures
Donation/ Loan Received
Insurance claim on account of machinery
damaged
Entrance/Life membership fee received by a
club

Revenue Reciepts
Short term receipts
Regular in nature

Received in the normal course of business

Shown in Trading, P&L A/c (Incomes)

Examples
Sales of Goods
Interest/Commission earned
Collection from Debtors

Subsidy from Government for working capital

Deffered Revenue
Expenditure
Revenue expenditure but the benefit may
extend over a number of years. (Deffered)
written off in a particular proportion over the
years (according to benefits Received)
Miscellaneous Expenditures/Fictitious
Assets (Non Current Assets-Balance
Sheet)

Examples
Heavy Advertising expenditure for a new
Product
Cost of experiments
Discount on issue of debentures
Preliminary Expenses

Capital Vs Revenue Profit

Profit earned normally/usually in the ordinary course of

business Revenue Profit (Taken to P&l A/c-Cr. Side)

Unusual Profit earned can be regarded as a Capital

Profit Taken to Capital Reserve (Balance Sheet)

Capital Reserve can be used to write off any capital

Loss

Examples: Profit earned on Reissue of shares/ Asset

sold above Cost
(Profit above Cost- Capital Profit, till Cost-Revenue
Profit)

MCQs
Q.1. Insurance Premium paid for risks against accidental
loss of properties is an example of :

MCQs
Q.2. Rs. 40,000 spent on repairs of newly purchased old
machinery is debited to

MCQs
Q.3. Which of the following is an item of
expense

MCQs
Q.4. Purchase of packing material for distribution of
goods from Calcutta Paper Mill Ltd

MCQs
Q.5. A Motor Car which was purchased for Rs.20,000
had its book value Rs.12,000 was sold for Rs.25,000
the capital profits will be

MCQs
Q.6. Cost of Goods purchased for resale is an example of

MCQs
Q.7. Which of the following is/are an example of capital
receipt

MCQs
Q.8. Which of the following is a revenue expenditure?

MCQs
Q.9. Money spent ` 10,000 as travelling expenses of the
directors on trips abroad for purchase of capital assets is

MCQs
Q.10. An old furniture was purchased for ` 10,000, it was
repaired for ` 100. The repairs Account should be
debited by: