Question

how would we determine whether a particular expenditure is capital or revenue? give 5 examples of each.

Answer 1

CAPITAL EXPENDITURE

Capital Expenditure is incurred for getting long-term advantage for the business.

Such expenditure increases the earning capacity of the business.

It is not incurred for day to day working of the business.

Following are examples of capital expenditure:

1) Acqisition of an asset

2) Improvement of fixed assets

3) Extension of an asset

4) Putting the new asset into working condition

5) Expenditure in acquiring the asset

6) Acqisition of a right to carry on business.

REVENUE EXPENDITURE :

Revenue expenditure is deducted from revenue income to ascertain net income or net profit.

Following are the examples of revenue expenditure :

1) Expenses for running the business

2) Expenses incurred to maintain the fixed assets

3) Depreciation

4) Purchase of material and goods.