Capital expenditure and revenue expenditure

6 important questions on Capital expenditure and revenue expenditure

What is a capital expenditure?

Capital expenditures are incurred when a business spends money either to:
- buy non current assets; or
- add to the value of an existing non-current asset
Included in such amounts should be spending on:
- acquiring non-current assets
- bringing them into business
- legal costs of buying buildings
- carriage inwards on machinery bought
- any other cost needed to get a non-current asset ready for use

What is a revenue expenditure?

Expenditure which is not spent on increasing the value of non-current assets, but is incurred in running the business on a day-to-day basis.

The difference between a capital and revenue expenditure?

A revenue expenditure is chargeable to the income statement, while capital expenditure will result in increased figures for non-current assets in the statement of financial position.
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How is the loan interest treated?

Interest on a loan is treated as a capital expenditure.

What is capital and revenue receipt?

A capita receipt is given when an item of capital expenditure is sold. Revenue receipts are sales and other revenue items that are added to gross profit, such as rent receivable and commissions receivable.

How do you recognize whether something is a capital or revenue expenditure?

1. If expenditure is directly incurred in bringing a non-current asset into use for the first time, it is capital expenditure.
2. if expenditure improves a non-current asset (by making it superior to what it was when it was first owned by the organisation, e.g. building an extension to a warehouse), it is a capital expenditure.
3. All other expenses are revenue expenditures.

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