CAPITAL AND REVENUE

NEED FOR CAPITAL AND REVENUE IN AN ORGANISATION 1. CALCULATION OF TRUE PROFIT AND LOSS. 2. DETERMINATION OF TRUE FINANCIAL POSITION.

CAPITAL EXPENDITURE
FEATURES:

1.GIVES BENEFIT FOR MORE THAN A YEAR.

2.INCREASES THE EARNING CAPACITY OR REDUCES THE WORKING EXPENSES. 3.HELPS IN CONTINUING OPERATION IN A COMPANY.

EXPENDITURE
AQISITION OF FIXED ASSET NOT MEANT FOR SALE. 1.FIXED ASSETS eg.land, building,plant, machinery etc. 2.INTANGIBLE ASSET eg.patent,copyright,goodwill etc. IMPROVEMENT AND ADDITIONS TO FIXED ASSET. 1.Reconditioning. 2.Increase in seat capacity in a cinema hall. 3.Repair and replacement. EXPENSES ICIDENTAL TO PURCHASE 1.Wages paid for installation.

REVENUE EXPENDITURE
FEATURES:

1.Its full benefit is consumed in a year. 2.Spend for purchase of assets meant for resale. 3.Spend for day to day expenses. 4.Maintanence of fixed assets.

DIFFERENCE BETWEEN CAPITAL EXPENDITURE AND REVENUE EXPENDITURE. 1.CE. Gives long term benefit RE. gives benefit for one accounting year. 2.CE. Is non-recurring expenditure. RE . Is spend each year for running a business.

 3.

CE. Improves the earning capacity of a business. RE. helps in maintanence of earning capacity. 4.That part of CE. Which is nt written off is shown on asset side of balance sheet and carried forward to the next year. RE isnt shown in the balancesheet fully utilised during the year. DEFERRED REVENUE EXPENDITURE: Capital expenditure which is treated as revenue expendure is known as DRE. 1. It is revenue in nature. 2. No real assets or properties are created. 3. Non-recurring in nature. 4. NON-transferable. 5. Benefits are aavailable for more than a year.

1. EXAMPLES

1. ADVERTISEMENT EXPENSES TO INTRODUCE A PRODUCT IN THE MARKET. 2.COST OF SHIFTING A PLANT TO A DIFFERENT SITE. 3.FOR THE FORMATION OF NEW CO. iePRELIMINARY EXPENSES.