Subjective Type

Distinguish between capital and revenue expenditure and state whether the following statements are items of capital or revenue expenditure (a) Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable. (b) Expenditure incurred to provide one more exit in a cinema hall in compliance with a government order. (c) Registration fees paid at the time of purchase of the building. (d) Expenditure incurred in the maintenance of a tea garden which will produce tea after four years. (e) Depreciation charged on a plant. (f) The expenditure incurred in erecting platform on which a machine will be fixed. (g) Advertising expenditure,the benefits of which will last for four years.

Solution

When the benefit of expenditure is to be received over a series of accounting years, it is termed as capital expenditure. Account incurred on purchase of fixed assets like land and building, plant and machinery, patents,trademark etc is termed as capital expenditure because the benefit is to be received over a number of years. On the other hand, when the benefit of expenditure is confined to a short period of time, normally a year, it is termed as revenue expenditure. e.g., rent of building, salaries, insurance premium, wages,audit fees etc.
(a) Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable (Capital Expenditure)
(b) Expenditure incurred to provide one more exit in a cinema hall in compliance with a government order. (Capital Expenditure).
(c) Registration fees paid at the time of purchase of a building. (Capital Expenditure).
(d) Expenditure incurred in the maintenance of tea garden which will produce tea after four years.(Revenue Expenditure).
(e) Depreciation charged on a plant.(Revenue Expenditure).
(f) The expenditure incurred in erecting platform on which a machine will be fixed.(Capital Expenditure).
(g) Advertising expenditure,the benefits of which will last for four years.(Revenue Expenditure).

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