Capital & revenue expenditure

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Capital & revenue expenditure

  1. 1. Capital & Revenue expenditure
  2. 2. Revenue expenditure does not increase the value of fixed assets but is incurred in the day-to-day running of the business. The difference between capital and revenue expenditure can be seen when considering the cost of purchasing and running a car. The expenditure incurred in buying the car is the capital expenditure whereas the cost of running the car (petrol and tax) is the revenue expenditure. The revenue expenditure does not add value to the car. Sometimes an item of expenditure will need dividing between capital and revenue expenditure, this is called a joint expenditure. For example Regents have just recently built a new building, and repaired the primary building. The total cost was £100,000. It cost £80,000 to build the new building and £20,000 was spent on repairing the primary building. The £80,000 is capital expenditure and the £20,000 is revenue expenditure
  3. 3. Capital & Revenue receipts When an item of capital expenditure is sold, the receipt is called a capital receipt. Suppose a car is bought for £10,000 and sold 5 years later for £2,000. the £10,000 is treated as capital expenditure, the £2,000 received is treated as a capital receipt. Revenue receipts are sales or other revenue items such as rent receivable or commissions receivable.

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