Capital & Revenue

expenditure

Revenue expenditure does not increase the value of fixed assets but is
incurred in the day-to-day running of the business. The difference
between capital and revenue expenditure can be seen when considering the
cost of purchasing and running a car. The expenditure incurred in buying
the car is the capital expenditure whereas the cost of running the car
(petrol and tax) is the revenue expenditure. The revenue expenditure does
not add value to the car.

Sometimes an item of expenditure will need dividing between capital and

revenue expenditure, this is called a joint expenditure. For example
Regents have just recently built a new building, and repaired the primary
building. The total cost was 100,000. It cost 80,000 to build the new
building and 20,000 was spent on repairing the primary building. The
80,000 is capital expenditure and the 20,000 is revenue expenditure

Capital & Revenue receipts

When an item of capital expenditure is sold, the receipt is

called a capital receipt. Suppose a car is bought for 10,000
and sold 5 years later for 2,000. the 10,000 is treated as
capital expenditure, the 2,000 received is treated as a capital
receipt. Revenue receipts are sales or other revenue items

such as rent receivable or commissions receivable.