Question

State with reasons whether the following are revenue or capital expenditure:
1. ₹2,000 spend on repairing a second hand machine before put to use.
2. ₹10,000 on repairing the factory.​

Answer 1

Answer:

revenue and expenditure

Answer 2

ANSWER :

1. ₹2,000 spend on repairing a second hand machine before put to use.

• It is a Capital Expenditure.

➥ Reason :- Any spend on acquiring Capital Asset and the amount spent for immediate repairs for making the Capital Asset fit for use is treated as Capital Expenditure. Therefore, the amount ₹2000 spent on repairing a second hand machine before put to use is a Capital Expenditure.

2. ₹10,000 on repairing the factory.

• It is a Capital Expenditure.

➥ Reason :- The factory is a fixed asset and the amount spent on repairing the factory is considered as Capital Expenditure because the benefit of such expenditure is derived over a long period of time. Therefore, the amount ₹10,000 on repairing the factory is a Capital Expenditure.

MORE TO KNOW :

❖ Capital Expenditure :-

• Capital Expenditure is the expenditure which results in acquisition of an essay on which help to increase the earning capacity of a business the benefit from a capital expenditure is developed over a longer period of time.

❖ Features of Capital Expenditure :-

• ➯ Capital expenditure is incurred for acquiring fixed asset.

• ➯ Capital Expenditure increases the value of fixed asset.

• ➯ Capital Expenditure increases the profit earning capacity of the business.

• ➯ Capital Expenditure are non recurring in nature

• ➯ Capital Expenditure is shown on the Asset side of the Balance Sheet.

❖ Revenue Expenditure :-

• Revenue Expenditure is the expenditure incurred to meet that day to day expenses of the concern. It is incurred in the normal course of business and the benefit of revenue expenditure is derived in the year of incurring the expenditure.

❖ Features of Revenue Expenditure :-

• ➯ Revenue Expenditure incurred to meet the day-to-day expenditure of a business concern.

• ➯ Revenue Expenditure are of routine and non-recurring in nature.

• ➯ Revenue Expenditure doesnot increases the profit earning capacity of the firm.

• ➯ Current assets acquired through Revenue Expenditures are meant for sale.

• ➯ Revenue Expenditure as shown at the Debit side of the Trading and Profit and Loss Account.