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Capital and revenue expenditure

rani (article assistent) (53 Points)

27 December 2008

What is the key criteria for capital and revenue expenditure? As an auditor how can I suggest one thing can be capitalised or not?

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8 Replies

CA Tilak Raj Sharma (Practising CA in Solan (H.P.)) (6374 Points)
Replied 27 December 2008

Does a Author incurs so much expenditure?

To be a Author you just need a Pen and notebooks.

Please specify the amount expended by you and the nature of expense.

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abhishek bhatt (CA student) (136 Points)
Replied 29 December 2008

whether to capitalise or not does not depends on amt but whether it is increasing life of assets or enabling concern to earn more

CA CS CIMA Prakash Somani (Landmark Group) (23502 Points)
Replied 30 December 2008

There are not fundamental criteria to set out nature of exp but roughly:

1. Nature of expenditure

2. How far we can get benefit of tht expenditure

3. Purpose of expenditure

4. Amount incurred

5. If it is related to normal course of business thn revenue exp.

6. If it increase the productivity then it is Capital and if it is incurred to maintain productivity then it may call revenue exp.

7. Others, you can refer Judgements of courts also and in every judgement you will find the reason provided by court that why they are declaring certain exp as revenue / capital.

Rahul (CA Final Student) (280 Points)
Replied 30 December 2008

Thanks prakash sir

CMA.Devarajan Swaminathan (ACMA) (1067 Points)
Replied 01 January 2009

An expenditure is a capital expenditure if such an expenditure results in future economic benefit. If it does not then it is a revenue expense.

Hope this helps.

Devarajan

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R.Suresh (Sr. Executive) (394 Points)
Replied 02 January 2009

Incurring the expenditure but the results in the futures it going to be a Capital.

Incurring the expenditure but the results in that year it going to be a Revenue.

Zainul Tawawalla (Audit ) (101 Points)
Replied 02 January 2009

If an expense incurred increases capacity or the life of the asset, it is to be capitalised, else it is to be expensed out. In case of new assets purchased. if the economic benefits from the asset is likely to exceed one year, it is to be capitalised, else expensed out.

HARSHIT KABRA (STUDENT) (81 Points)
Replied 02 January 2009

The nature of transaction is the key. if the expenditure is of recurring nature it must be a revenue. As per the norms of accountancy and companies Act, any expenditure exceeding Rs.5000/- needs to be capitalised.
For e.g. if a calculator costing more than Rs.5000 is purchased it is required to be capitalised. Same if its less than 5000/- it is not necessary to capitalise. The decision of capitalisation depends upon the facts and the genuiness of the transaction. If any expenses or repairs has been done to asset the treatment differs. If its increasing the capacity or life of asset it needs to be capitalised or else it has to expensed out.

Any further clarification are most welcomed. If m wrong correct myself also