Revise with this sheet

1. Capital /Revenue and Deferred Expenditure
Revenue Expenditure : The characteristics of Revenue Expenditure is as under :
1 Expenses incurred for smooth running of day to day business.
2 Are recurring in nature.
3 The benefit of the expenses expires within one accounting Year.
4 Only maintains the Earning Capacity of the business.
5 Revenue Expenditure is shown in Trading, Profit & Loss account.
eg: Salaries, Wages, Rent, Purchases.
If an expenditure incurred is huge but no benefit is derived by the business than such expenditure should be treated as Revenue Expenditure
and should be written of to Profit & Loss a/c.
eg: If Rs.5,00,000 was incurred on Research & Development for developing a new product but the research failed then the whole expenditure
of Rs. 5,00,000 will be written off to Profit & Loss a/c, even though the amount involved is huge..
Capital Expenditure : The characteristics of Capital Expenditure is as under :
1 Expenses incurred for increasing the Earning Capacity of the business or for decreasing the Operating expenses permanently.
2 Are non-recurring in nature.
3 The benefit of the expenses does not expire within one accounting Year, but spreads over more than one Year..
4 For Increasing the life of the asset.
5 Capital Expenditure is shown as Assets in Balance Sheet on Assets side .
eg: Purchase of Fixed Assets like Building, Machinery, Furniture.
All the cost incurred till the Asset is put to use should be added to the cost of the Asset or should be Capitalised.
eg: Purchase of a Property xxxxx eg: Purchase of a Plant & Machinery
Add Stamp Duty & Registration Expenses xxxx Add Wages & Erection Charges xxxx
Add Legal & Other connected Expenses xxxx Add Trial Run Expenses xxxx
Total cost of Property xxxxx Total cost of Plant & Machinery xxxxx
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2. Capital /Revenue and Deferred Expenditure
Deferred Revenue Expenditure : The characteristics of Deferred Revenue Expenditure is as under :
1 It is Revenue in nature.
2 The benefit of the expenses does not expire in the same accounting year, but is spread over more than one year, normally 3 to 5 years.
3 The period for which the expediture would provide benefit cannot be precisely estimated.
eg: Heavy advertising expenditure to launch a New Product in the Market say Rs.6,00,000 and it is estimated that the benefit will be avaibale for
for 3 years.
Then in the first year Rs. 2,00,000 will be written off to Profit & Loss a/c, and the balance Rs. 4,00,000 will be carried forward to
Balance Sheet and shown under Assets side as Miscellaneous Expenditure to the extent not written off.
Then in the second year Rs. 2,00,000 will be written off to Profit & Loss a/c, and the balance Rs. 2,00,000 will be carried forward to
Balance Sheet and shown under Assets side as Miscellaneous Expenditure to the extent not written off.
Then in the third year Rs. 2,00,000 will be written off to Profit & Loss a/c, and the NO balance will be carried forward to
Balance Sheet and shown under Assets side as Miscellaneous Expenditure to the extent not written off.
For revision refer page 2.89 to 2.91 of ICAI Book .
Self Examination question page 2.95 & page 2.96 of ICAI Book.
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