2. Revenue and Capital Expenditures:
Revenue Expenditure relate to the
Operations of business or to the revenue
earned during the period or the items of
expenditure whose benefit does not exceed
beyond the accounting period in which it
was incurred.
Capital Expenditure generates enduring
benefits and helps in revenue generation for
more than one accounting period in which
the expense was incurred.
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3. Revenue and Capital Expenditures:
The distinction between Revenue and
Capital Expenditures is done for the
purpose of placing them in Profit and Loss
a/c (If it is Revenue expense) or in the
Balance Sheet (If it is Capital expense).
Even though Capital expenditures are
written as Asset in the B/S, they are
expensed over a period of time based on
their utilisation in that accounting period.
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4. Revenue and Capital Expenditures:
Revenue expenses are transferred to P/L
a/c in the year of spending whereas Capital
expenses are transferred in the year of
utilisation of its benefit.
Thus both Capital and Revenue expenses
are ultimately transferred to Profit and loss
a/c.
Expenses are recognised in P/L a/c through
matching concept, whereas revenues are
matched with expenses to arrive at Profit or 4
5. How to Determine Revenue and Capital Expenditures???
Based on Nature of business, for a
Furniture dealer, Purchase of Furniture is a
Revenue expenditure and for any other
dealer, it is a Capital expenditure.
Based on frequency of recurrence,
Expenses which are frequently recurring are
Revenue in nature (Ex: Rent, Salary etc) and
those which are non-recurring are Capital
in nature (Ex: Purchase of Fixed assets)
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6. How to Determine Revenue and Capital Expenditures???
Based on Purpose of Expense, repair
expenses incurred in the ordinary
course of business for maintenance of
asset is a Revenue Expense and
Expense incurred to increase the
productive capacity of asset is a Capital
expense.
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7. How to Determine Revenue and Capital Expenditures???
Based on the Year in which it affects
the revenue generating capacity of
business, expense which helps in
generating revenue in the current
period is a revenue expense and that
which generates revenue over more
than one accounting period is Capital
expense.
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8. How to Determine Revenue and Capital Expenditures???
Based on the Materiality, expenses whose
relative proportion of amount involved is
big is Capitalised or else it is Expensed
(Revenue Expense).
NOTE:
Expenses on repairs of normal nature is a
Revenue expense, however repairs on
purchase of a second hand asset before its
use is a Capital Expense.
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9. Deferred Revenue Expenditures:
It is a revenue expense incurred in one
accounting period itself but for the time being
it is deferred from being charged completely
against income.
It is deferred due to benefit from such
expense being expected for more than one
accounting period.
Ex: Heavy Advertisement Expenses,
Preliminary Expenses, Heavy Repairs on
improving the productive capacity of asset etc.
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10. Deferred Revenue Expenditures:
A thin line of difference exists between
Deferred Revenue expense and Prepaid
expense, while the former expenses/ benefit
cannot be precisely estimated over an exact
period of time, the latter's is possible.
Ex: Advance Rent of 2months rent is
prepaid expense, but heavy advertising
expense may be deferred over a period of 4
to 5 years.
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11. Revenue and Capital Receipts:
Revenues which are obtained in the course
of normal business activity are called as
Revenue Receipts.
Ex: Sale of goods and services, Interest on
Investments etc.
Capital receipts are receipts which are not
obtained in the normal course of business.
They are generally non-recurring in nature.
Ex: Sale of fixed assets, loans borrowed etc.
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12. Revenue and Capital Receipts:
Revenue receipts are Credited to P/L a/c
whereas Capital receipts are not credited to
P/L a/c. Only Profit or Loss arising on
account of sale of assets are credited or
debited to P/L a/c in the year of such sale.
However recognition of both Revenue and
Capital receipts are on accrual basis.
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