Capital expenditures are typically one-time large purchases of fixed assets that will be used for revenue generation over a longer period. Revenue expenditures are the ongoing operating expenses, which are short-term expenses used to run the daily business operations.

1. CapitalExpenditure
&
RevenueExpenditure
MUDASSIR RAZA

2. Learning Objectives
Capital Expenditure
Revenue Expenditure
Difference between capital and revenue expenditure
Incorrect statement of expenditure
Treatment of loan interest
Capital and Revenue Receipts

3. Capital Expenditure
When a business spends money to buy or add value to a non-current asset.
It is incurred when a business spends money either to:
- buy non-current asets
- add to the value of an existing non-current asset
Included in such amounts should be spending on:
- acquiring non-current asset
brininging them into the business
legal costs of buying buildings
carriage inwards on machinery bought
any other cost needed to get a non-current asset ready for use

4. Revenue Expenditure
Expenses needed for the day to day running of the business.
Expenditure which is not spent on increasing th evalue on non-current assets, but is incurred
in the running the business on a day to day basis

5. Example The difference between revenue
expenditure and capital expenditure can
be seen clearly with the total cost of using
van for a business. Buying a van is an
example of capital expenditure. Paying for
petrol to use in the van is revenue
expenditure.

6. Why do you think a business might
want to treat an item of expenditure as
capital rather than as revenue?
ACTIVITY

7. Acitivity
Differences between capital and revenue expenditure

8. Incorrect treatment of expenditure
Capital expenditure is incorrectly treated as revenue expenditure
Revenue expenditure is incorrectly treated as capital expenditure
If one of the following occurs:

9. Treatment of loan interest
If money is borrowed to finance the purcahse of a non-current assets, interest will have
to be paid on the loan.
Loan interest was revenue expenditure and not capital expenditure.

10. Capital and Revenue Receipts
When an item of capital expenditure is sold the receipt is called a capital receipt.
Suppose a van is bought for $ 5000 and sold five years laters for $ 750. The $ 5000 was
treated as capital expenditure. The $ 750 received is treated as a capital receipt and credited to
the non-current asset account in the general ledger.
Revenue receipts are sales and other revenue items that are added to gross profits, such as
rent receivable and comissions receivables.

11. Thankyou.