Ad-Free CAclubindia and Daily Updates on your mobile. Subscribe Now!

Financial economic accounting

17 February 2022

what is mean by capitalisation give some examples what is the difference between expenses versus capitalisation when I should have to capitalised?????

Reply
Follow
Share

10 Replies

prasad Nilugal ( GST Practitioner & Accounts ) (14546 Points)
Replied 17 February 2022

Any expenditure incurred for aquisition of an asset like Land , Building , Machinery , Vehicle , Investment etc are capital expenditure , any expenditure incurred to earn the profit is revenue expenditure .
Example of capital expenditure Machinery brought in the company for installation , all the installation expenses will be added to the cost of purchase of Machine .

1 Like

Upgrade to CAclubindia Pro. Subscribe Now!

MPR Sanjay Kumar (3100 Points)
Replied 17 February 2022

Normally expenses or posted into profit and loss account which expenses are eligible to capitalised???? what are the expenses eligibility capitalised

prasad Nilugal ( GST Practitioner & Accounts ) (14546 Points)
Replied 17 February 2022

As I mentioned above expenses to earn profit are revenue expenditure , posted to P&L .

MPR Sanjay Kumar (3100 Points)
Replied 17 February 2022

Thank you 😊 very much

prasad Nilugal ( GST Practitioner & Accounts ) (14546 Points)
Replied 17 February 2022

Revenue expenditure you can not capitalise or treat as a capital expenditure .

1 Like

Upgrade to CAclubindia Pro. Subscribe Now!

MPR Sanjay Kumar (3100 Points)
Replied 17 February 2022

🌟 what is mean by net realisable value while the inventory is valued in financial statement lower of cost could you please tell me

prasad Nilugal ( GST Practitioner & Accounts ) (14546 Points)
Replied 17 February 2022

Net realisable value is difference between sales price and cost of sales , if inventory is valued lower of cost price , then net realisable value will be more .

1 Like

MPR Sanjay Kumar (3100 Points)
Replied 17 February 2022

Why there machinery of inventory valued in lower of cost what is the reason?

prasad Nilugal ( GST Practitioner & Accounts ) (14546 Points)
Replied 17 February 2022

Inventory are valued at market price or cost price which ever is lower .

Mohanraj J (1166 Points)
Replied 21 February 2022

Hi Friends,

I need your answers with explanation for below questions ;

Q1;
ABC LTD has recently sold two hydraulic components to long-known local customer. The hydraulic components were sold for an amount of INR 1.200.000. Contribution margin on sale were 40%. Unfortunately, the included metal hoses were filled with rust, and the customer therefore could not accept the components. It was agreed to credit the sale. Please book the credit invoice.

Q2;
ABC LTD ordered goods that amounts to INR 50.000.000 from our owner, ABC LTD A/S in Germany. ABC LTD A/S has made three shipments each covering one third of the total amount. Only two of three shipments have been received. The third shipment is currently at sea. Expected arrival is May 5, 2022. The purchase will be paid upon receipt of all goods. Please explain how to present in the monthly report of April 2022.

Q3;
ABC LTD has an old overdue receivable of INR 1.000.000 from a customer, for which a provision for bad debts of INR 1.000.000 have been made some months ago. The customer has now been declared bankrupt, and half a year later ABC LTD receives INR 400.000 from the estate. Please explain how to present this in the monthly report.

Q4;
Every month inventory must be calculated and presented in the monthly report. Please explain all relevant steps in calculating the correct inventory value to be presented in the monthly report.

Kindly help me Friends.

Thanks in advance