Capital expenditure refers to spending that acquires or improves the efficiency of an asset, while revenue expenditure maintains assets or supports business operations. Examples of capital expenditure include purchasing machinery or improving business performance. Revenue expenditure examples are repairs, salaries, and stationery. Deferred revenue expenditure provides long-term benefits, like heavy research or advertising costs. Proper classification is important for adhering to accounting principles and presenting accurate financial statements.

1. Rayyan Furtado
CAPITALCAPITAL ANDAND
REVENUEREVENUE

2. Capital and Revenue expenditure
Capital Expenditure means any expenditure incurred to :
1. Acquire an asset and bring it into working condition
2. Improve the efficiency or substantial working life of the asset
3. Improve the performance of the business
.
Eg. 1.Purchase of machinery
2. Fees paid for installation of machinery
3. Custom duty paid for import of machinery

3. Revenue Expenditure means any expenditure incurred to maintain the
assets in working condition and for the operation of the business.
Examples
1. Repairs of furniture
2. Painting of building
3. Purchase of stationery
4. Salaries

4. Deferred Revenue expenditure means essentially a revenue expenditure
but the benefit of which is received over a period of more than one year.
Examples :
1.Heavy research expenditure
2. Heavy advertisement expenditure

5. The most important factor affecting the classification is the nature of business.
Need to classify expenses into capital and revenue
1. To adhere to Matching Principle
2. To enable a true and fair view of financial statements
3. To show correct financial results

6. Class exercise 1
Classify the following expenditure into capital , revenue and deferred
revenue.
1. Purchase of building
2. Legal fees paid for assessing title deeds for purchase of building
3. Repair expenses incurred on an second hand machinery purchased
4. Salaries paid to staff
5. Expenses incurred for advertising the company’s product in local
newspaper
6. Expenses incurred for shifting the raw materials from one godown to
another
7. Replacement of a worn out part of machinery with a new part
8. The coal fired engine broke down and it was replaced with a gas fired
one.

7.  Freight paid on purchase of machinery
 Installation and commissioning charges paid for erection of machinery’
 Built an extension to the factory building
 Rebuilt a wall destroyed by storm
 Heavy marketing expenditure incurred on launching a new product.
 Purchase of second hand furniture
 Purchase of motor car
 Purchase of new tyres for an old motor car