Distinguish between capital and revenue expenditure and state whether the following statements are items of capital or revenue expenditure: (a) - Accountancy - Financial Statements - I

Question

Distinguish between capital and revenue expenditure and state
whether the following statements are items of capital or revenue
expenditure:
(a) Expenditure incurred on repairs and whitewashing at the time
of purchase of an old building in order to make it usable
(b) Expenditure incurred to provide one more exit in a cinema
hall in compliance with a government order
(c) Registration fees paid at the time of purchase of a
building
(d) Expenditure incurred in the maintenance of a tea garden
which will produce tea after four years
(e) Depreciation charged on a plant
(f) The expenditure incurred in erecting a platform on which a
machine will be fixed
(g) Advertising expenditure, the benefits of which will last for
four years

Saurabh Mehta · Accepted Answer

Basis of Difference

Capital Expenditure

Revenue Expenditure

Meaning

It is
incurred to increase the earning capacity of a business

It is
incurred to maintain the earning capacity of a business

Purpose

It is
incurred to acquire fixed assets to carry out operations

It is
incurred to conduct day to day activities

Benefits

The
benefits of such expenditures can be availed for more than one
year

The
benefits of such expenditures can only be availed for one year

Nature

It is
non-recurring by nature

It is
generally recurring in nature

Shown

Capital expenditure is shown in the assets side of the Balance
Sheet

Revenue expenditure is shown in the debit side of the trading and
Profit and Loss Account

(a)
Capital expenditure
(b)
Revenue expenditure
(c)
Capital expenditure
(d)
Capital expenditure
(e)
Revenue expenditure
(f)
Capital expenditure
(g)
Deferred revenue expenditure

Basis of Difference	Capital Expenditure	Revenue Expenditure
Meaning	It is incurred to increase the earning capacity of a business.	It is incurred to maintain the earning capacity of a business.
Purpose	It is incurred to acquire fixed assets to carry out operations.	It is incurred to conduct day to day activities.
Benefits	The benefits of such expenditures can be availed for more than one year.	The benefits of such expenditures can only be availed for one year.
Nature	It is non-recurring by nature.	It is generally recurring in nature.
Shown	Capital expenditure is shown in the assets side of the Balance Sheet.	Revenue expenditure is shown in the debit side of the trading and Profit and Loss Account.