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Unit 4: Capital and Revenue Items




          likely to the enjoyed over a number of years. Such expenditure whose benefi t is enjoyed not in   Notes
          one year but over a number of years is known as deferred revenue expenditure.

                Example:  1.  Heavy initial expenditure incurred on Advertisement for introducing a
                            product in the market.
                        2.  Expenditure incurred in shifting business to more convenient premises
                        3.  Expenditure incurred on research and development




              Task    Choose the right kind of expenditure by putting a Tick Mark in correct column:
                             Expenditure               Capital Revenue  Deferred Revenue
             Salaries
             Legal Charges
             Wages for installing a machinery
             Depreciation
             Repairs of furniture purchased second hand
             Advertisement for introducing a new product
             Carriage paid on goods purchased
             Research & Development expenditure
             Expenditure on dismantling and reinstallation of Plant
             Offi ce expenses
             Expenditure on the construction of an additional room
             Maintenance charges of building



          Distinction between Capital and Revenue Expenditure

          Following are the main points of difference between capital and revenue expenditures.
            Basis of Difference  Capital Expenditure         Revenue Expenditure
            Purpose          It is incurred for the pur-  It is incurred for the maintenance of fi xed as-
                             chase of fi xed assets.  sets.
           Earning capacity  It increases the earning   It does not increase the earning capacity of the
                             capacity of the business.  business.

           Periodicity of benefi t  Its benefits are spread over a   Its benefit is only for one accounting year.

                             number of years.
           Placement in fi nan-  It is an item of Balance Sheet   It is an item of Trading and Profit and Loss Ac-

           cial statements   and is shown as an asset.  count and is shown on the debit side of either
                                                    of the two.
           Occurrence        It is non-recurring expendi-  It is usually a recurring expenditure.
                             ture in nature.
          4.1.2 Capital and Revenue Receipts

          Just as expenditures are classified into Capital or Revenue Expenditure, in the same way receipts

          are classifi ed into:
          1.   Capital Receipts, and
          2.   Revenue Receipts.






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