Capital Expenditure or Revenue Expenditure kya hote hain....??
Please explain in detail........in Simple word.................!!
5 Replies
Veeresh Aggarwal
(CA Final)
(36 Points)
Replied 19 July 2012
Capital Expenditure: All those expenses which increase the revenue earning capacity. Eg: Building, Machinery, Factory, All these help increase the revenue in long term so these are capex.
Revenue Expenditure: Expenses incurred in short term day to day transactions in order to carry on the business, generally business expenditure eg: repairs, maint., travelling exp, salary etc.
CA CS CIMA Prakash Somani
(Landmark Group)
(23502 Points)
Replied 19 July 2012
There is no clear definition as of now... it can only be define case by case..
the basic diiference is capital expenditure is for long term but revenue is comperatively short term...
Sanket
(!..Live to Give..!)
(16427 Points)
Replied 19 July 2012
Capital Expenditure:
These are expenditure incurred in acquiring non-current assets or in making extension to existing non-current assets. Capital expenditure increases the earning capacity of a business.
Businesses benefit from such type of expenditure over a long period of time. For example, a delivery vehicle can be used for over 5 years to deliver goods to customers. Computers may easily be used for 3 or 4 years. A building may be used for over 20 years.
For the above reasons, capital expenditure are entered as non-current assets in the balance sheet. The cost of non-current assets is charged against profit over the years the assets can used and benefits derived. Such process is called “provision for depreciation”.
Businesses benefit from such type of expenditure over a long period of time. For example, a delivery vehicle can be used for over 5 years to deliver goods to customers. Computers may easily be used for 3 or 4 years. A building may be used for over 20 years.
For the above reasons, capital expenditure are entered as non-current assets in the balance sheet. The cost of non-current assets is charged against profit over the years the assets can used and benefits derived. Such process is called “provision for depreciation”.
Revenue Expenditure:
These are expenditure incurred for the day to day running of the business. Though they do not increase the earning capacity of the business but they are essential in maintaining it.
Revenue expenditure benefits the business only in the period to which they relate. For example, rent is paid monthly, so the rent paid in January only gives the possibility to the business to use a rented property in January only. Similarly, rates and license fees for a given year gives right to the business to be operational only during that year. Other examples of revenue expenditure include repairs to non-current assets, electricity and water charges, telephone expenses, vehicle expenses, fuel etc. Purchase of goods for resale is also classified as revenue expenditure.
Revenue expenditure are treated as expenses in the income statement for the period to which they relate.
Revenue expenditure benefits the business only in the period to which they relate. For example, rent is paid monthly, so the rent paid in January only gives the possibility to the business to use a rented property in January only. Similarly, rates and license fees for a given year gives right to the business to be operational only during that year. Other examples of revenue expenditure include repairs to non-current assets, electricity and water charges, telephone expenses, vehicle expenses, fuel etc. Purchase of goods for resale is also classified as revenue expenditure.
Revenue expenditure are treated as expenses in the income statement for the period to which they relate.
divyalakshmi
(student)
(153 Points)
Replied 22 July 2012
is money deposited for telephone connection for office.. capital or revenue
(actually the ans is sayin tiz is not a expenditure but an asset....) plz xplain
Sanket
(!..Live to Give..!)
(16427 Points)
Replied 22 July 2012
if u r giving deposit for a new telephone connection then it wil b treated as deposit and it is shown under the head 'deposits' in balance sheet. And monthly u r paying the telephone bill will b treated as an expenditure and debited to profit and loss a/c...
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