Capital and revenue items ( ICAP ST p.

371)

Capital expenditure is any expenditure:

a) Are the acquisition of Non-current assets (e.g. acquisition of land, building motor
vehicle)
b) Any costs necessary to bring asset into working condition (e.g. directly attributable
charges like installation cost, delivery cost, testing cost etc.)
c) Any subsequent major part replacement and improvement expenditure in these
non-current assets. Such expenditures may
1) improve asset’s, useful life,
2) efficiency,
3) product quality
4) reduce operational expenses of the asset.
Capital expenditure is capitalised in SOFP as

Dr- Cost PPE

Cr Bank/Cash/Payable

Revenue expenditure

Expenditure incurred in day to day running of business. Such expenditures are usually
short term and may include
a) Subsequent operational and maintenance expenses
b) Minor part replacement

These are expenses and recorded in SOCI as expenses

Dr Operational expense/ maintenance expense/Minor part expense

Cr Cash/Bank

Capital Receipts

Includes contribution made by owner in the business or money received from sale of
non-current assets. They are included in SOFP.

Revenue Receipts

Money received from goods supplied or other services/goods supplied in normal

course of business e.g. rent received or interest received. Such receipts are more
frequent in nature and are recorded in SOCI.
 Capital Profits/Losses:

Profit/Losses relating to sale of non-current assets or other long-term investments and

are included as other income in statement of other comprehensive income

Revenue Profits/Losses:

Profit/Losses from sale of trading goods or interest or dividend received on

investments held by business

How to distinguish between Capital and revenue expenditures?

Item Capital Expenditure Revenue Expenditure

Timing Usually long-term expenditures Short term expenditures

Recorded in SOFP SOCI

Size Usually large in size (e.g. can be in lakhs or May be smaller than capital expenditure
millions) in size but not always necessary