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.
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