Difference between Capital And Revenue Expenditure
Financial Accounting II
BBA | BBA-BI | BBA-TT | BCIS
Capital expenditure includes costs incurred on the acquisition of a fixed asset and any subsequent expenditure that increases the earning capacity of an existing fixed asset.The cost of acquisition not only includes the cost of purchases but also any additional costs incurred in bringing the fixed asset into its present location and condition (e.g. delivery costs).Capital expenditure, as opposed to revenue expenditure, is generally of a one-off kind and its benefit is derived over several accounting periods. Capital Expenditure may include Purchase costs (less any discount received),Delivery costs,Legal charges,Installation costs,Up gradation costs,Replacement costs,etc.
Revenue expenditure incurred on fixed assets include costs that are aimed at ‘maintaining’ rather than enhancing the earning capacity of the assets. These are costs that are incurred on a regular basis and the benefit from these costs is obtained over a relatively short period of time. For example, a company buys a machine for the production of biscuits. Whereas the initial purchase and installation costs would be classified as capital expenditure, any subsequent repair and maintenance charges incurred in the future will be classified as revenue expenditure. This is so because repair and maintenance costs do not increase the earning capacity of the machine but only maintains it (i.e. machine will produce the same quantity of biscuits as it did when it was first put to use).Revenue costs therefore comprise of Repair costs,Maintenance charges,etc.
|Basis||Capital Expenditure||Revenue Expenditure|
|Occurance||Capital Expenditure is incurred to acquire or to improve permanent asset.||Revenue Expenditure is incurred in normal courses of Business.|
|Effect||It increases the value of assets and earning capacity.||It is incurred for maintaining earning capacity of the business and up keeps 0f the fixed assets.|
|Benefits||It provides benifits over several years.||It is consumed within the accounting year.|
|Nature||It is non-recurring in nature.||It is recurring in nature.|
|Presentation||It is shown in the balance sheet of asset side.||It is charged in revenue account ie; income statement.|