Treatment of a Transaction depends on the duration of its effect, i.e Long term or short term. The long term effect transaction i.e Capital Transactions & the short term

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CAPITAL V/S REVENUE
TRANSACTIONS

2. Generates Economic Benefits for more than
Accounting Period
Occurred irregularly, once in a while (may be of
Big amount) – Financed from long term Capital
Results into a Fixed Asset
Increase the efficiency/earning capacity of
an existing asset.

3. - “Fixed assets means the capital expenditures from
which a future economic benefit arises”
- Incidental expenses incurred till the assets is put to
use
- These expenditures are shown as “Assets in Balance
Sheet”
- Incurred for growth of the business.
- Written off in P&L Accounts (as per the accrual of its
benefits)

4. Purchase of a furniture
Wages for a construction of a building.
Building a floor of an existing building
Installation expenses of a Machine.
Legal fees to acquire a property

5. Business’s recurring/regular expenditures
Benefit is for a single accounting period
Necessary to smoothly run the business
financed from the Working Capital
Shown in Trading, P& L A/c (Expenses)

6. Payment of salaries/ rent/ purchases
Annual White washing of office
Stationery purchases by a Stationery dealer
Bad debts

7. Nature of Business Purpose of expenses
Recurring nature of expenditure
Effect on Revenue generating capacity
Materiality of amount involved

8. These are the long term receipts
Irregular in nature
Not the normal/revenue business activities
Creates long term liabilities (Balance Sheet)

9. Issue of Share Capital/Debentures
Donation/ Loan Received
Insurance claim on account of machinery
damaged
Entrance/Life membership fee received by a
club

10. Short term receipts
Regular in nature
Received in the normal course of business
Shown in Trading, P&L A/c (Incomes)

11. Sales of Goods
Interest/Commission earned
Collection from Debtors
Subsidy from Government for working capital

12. Revenue expenditure but the benefit may
extend over a number of years. (Deffered)
written off in a particular proportion over the
years (according to benefits Received)
Miscellaneous Expenditures/Fictitious Assets
(Non Current Assets-Balance Sheet)

13. Heavy Advertising expenditure for a new
Product
Cost of experiments
Discount on issue of debentures
Preliminary Expenses

14.  Profit earned normally/usually in the ordinary course of
business – Revenue Profit (Taken to P&l A/c-Cr. Side)
 Unusual Profit earned can be regarded as a Capital
Profit – Taken to Capital Reserve (Balance Sheet)
 Capital Reserve can be used to write off any capital
Loss
 Examples: Profit earned on Reissue of shares/ Asset
sold above Cost
(Profit above Cost- Capital Profit, till Cost-Revenue
Profit)

15. Q.1. Insurance Premium paid for risks against accidental
loss of properties is an example of :
Revenue Expenditure
Capital Receipts
Deferred Revenue Expenditure
Capital Expenditure
A

16. Q.2. Rs. 40,000 spent on repairs of newly purchased old
machinery is debited to
Repair Account
Cash A/c
General expenses A/c
Machinery A/
D

17. Q.3. Which of the following is an item of
expense
Charges paid for installation of machinery
Recovery of electricity bills paid for employees
Payment of electricity deposit
Payment of electricity bill
D

18. Q.4. Purchase of packing material for distribution of
goods from Calcutta Paper Mill Ltd
Revenue expenditure
Capital expenditure
Deferred revenue expenditure
None of the above
A

19. Q.5. A Motor Car which was purchased for Rs.20,000
had its book value Rs.12,000 was sold for Rs.25,000
the capital profits will be –
Rs.5,000
Rs.8,000
Rs.13,000
Rs.25,000
A

20. Q.6. Cost of Goods purchased for resale is an example of
Capital Expenditure
Revenue Expenditure
Deferred Revenue Expenditure
None of these
B

21. Q.7. Which of the following is/are an example of capital
receipt
Sale proceed of fixed asset
Loan raised from financial institutions
Sale of investment
All the three
D

22. Q.8. Which of the following is a revenue expenditure?
Freight paid on purchase of plant and machinery
Legal expenses pain to acquire a property
Expenses incurred to reduce working capital requirement
Annual whitewash of the factory building
D

23. Q.9. Money spent ` 10,000 as travelling expenses of the
directors on trips abroad for purchase of capital assets is
Capital Expenditures
Revenue Expenditures
Deferred Revenue Expenditures
None of the Above
A

24. Q.10. An old furniture was purchased for ` 10,000, it was
repaired for ` 100. The repairs Account should be
debited by:
` 10,000
` 10,100
` 100
Nil
D