Capital Vs Revenue transactions

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• CAPITAL V/S REVENUE TRANSACTIONS

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Capital Expenditures

• 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.

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Capital Expenditures

• 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 PL Accounts (as per the accrual
  of its benefits)

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Examples

• 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

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Revenue Expenditure

• Businesss 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)

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Examples

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

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Capital V/s Revenue Expenditures

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

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Capital Reciepts

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

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Examples

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

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Revenue Reciepts

• Short term receipts
• Regular in nature
• Received in the normal course of business
• Shown in Trading, PL A/c (Incomes)

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Examples

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

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Deffered Revenue Expenditure

• 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)

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Examples

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

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Capital Vs Revenue Profit

• Profit earned normally/usually in the ordinary
  course of business Revenue Profit (Taken to Pl
  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)

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MCQs

• Q.1. Insurance Premium paid for risks against
  accidental loss of properties is an example of

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MCQs

• Q.2. Rs. 40,000 spent on repairs of newly
  purchased old machinery is debited to

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MCQs

• Q.3. Which of the following is an item of expense

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MCQs

• Q.4. Purchase of packing material for
  distribution of goods from Calcutta Paper Mill
  Ltd

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MCQs

• 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

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MCQs

• Q.6. Cost of Goods purchased for resale is an
  example of

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MCQs

• Q.7. Which of the following is/are an example
  of capital receipt

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MCQs

• Q.8. Which of the following is a revenue
  expenditure?

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MCQs

• Q.9. Money spent 10,000 as travelling expenses
  of the directors on trips abroad for purchase of
  capital assets is

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MCQs

• Q.10. An old furniture was purchased for
  10,000, it was repaired for 100. The repairs
  Account should be debited by