Revenue & Capital Expenses

Presentation on Revenue and Capital Expenses on Income

1. PRESENTATION ON
CAPITAL AND REVENUE
EXPENDITURE AND INCOME
PRESENTED BY:
MANSI RASTOGI
Asija& Associates Chartered Accountants

2. CAPITAL EXPENDITURE
Resultsintheacquisitionorconstructionoffixedassets.
Generatesenduringbenefits.
Helpsinrevenuegenerationovermorethenone
accountingperiod.
PlacedontheassetsideoftheBalanceSheet.
TransferredtoP&Laccountoftheyearonthebasisof
utilizationofthatbenefitsinparticularaccountingyear.
Eg:Constructionofbuilding
Asija& Associates Chartered Accountants

3. REVENUE EXPENDITURE
Relatestotheoperationofthebusinessofanaccounting
period.
Benefitsoftheseexpendituredonotextendbeyondthe
periodforwhichitwasincurred.
Incurredforthepurposeoftheorganisation’sdaily
activities,service/trade
Tomaintainfixedassets.
ShowninP&Lastheirbenefitsareforoneaccounting
period.
Eg:Repairandmaintenanceofbuilding
Asija& Associates Chartered Accountants

4. CONSIDERATIONS IN DETERMINING
CAPITAL & REVENUE EXPENDITURE
NatureofBusiness:Foratraderdealinginfurniturepurchaseof
furnitureisrevenueexpenditure.
Recurringnatureofexpenditure:expensesrecurringofteninan
accountingyeararerevenueexpenditurewhileexpensesofnon
recurringnaturearecapitalexpenditure
Purposeofexpenditure:Repairofbuildingisofrevenuenature
whileconstructionofroomiscapitalexpenditure.
Asija& Associates Chartered Accountants

5. CONSIDERATIONS IN DETERMINING
CAPITAL & REVENUE EXPENDITURE
Effectonrevenuegeneratingcapacityofthebusiness:
Generateincomeincurrentperiod
Shouldbematchedwiththerevenueearnedinthecurrentperiod.
Helptogeneraterevenueformorethen1accountingperiodare
capitalexpenditure.
Materialityoftheamountinvolved:
Relativeproportionofamountinvolvedisalsoanimportant
consideration.
Evenifexpendituredoesnotincreasetheproductivecapacity,it
maybecapitalizedduetotheamountinvolved
Anexpendituremayincreasetheassetvalueyetnotcapitalizeddue
totheamountinvolved.
Asija& Associates Chartered Accountants

6. DISTINCTION BETWEEN
CAPITAL & REVENUE EXPENDITURE
Capital expenditure Revenue expenditure
Contributestotherevenue
earningcapacityofabusiness
overmorethenoneaccounting
year.
Theseareplacedontheasset
sideofthebalancesheet
Incurredtopurchasefixed
asset
E.g.Constructionofbuilding
Revenueexpensesare
incurredtogeneraterevenue
foraparticularaccounting
year.
ThesearerecordedinP&L
account.
Incurredtomaintainfixed
asset.
E.g.Whitewashofbuilding.
Asija& Associates Chartered Accountants

7. DEFERRED REVENUE
EXPENDITURE
Thoseexpenses,thebenefitofwhichmaybeextendedtoa
numberofyears,say,3to5years.Thesearetobe
chargedtoprofitandlossaccount,overaperiodof3to5
yearsdependinguponthebenefitaccrued.
Unlessdeferredrevenueexpenditurearenotwrittenoff,
thisisshownontheassetssideofthebalancesheetunder
thehead“MISCELLANEOUSEXPENDITURE”
Eg:Expenseonadvertisement
Asija& Associates Chartered Accountants

8. DISTINCTION BETWEEN
DEFFERED & PRE-PAID EXPENDITURE
Deferred revenue expenditurePrepaid expenditure
Thebenefitsofdeferredrevenue
expensescannotbeprecisely
estimated
Heavyadvertisingtolaunchanew
productisadeferredrevenue
expendituresinceitsbenefitsare
availableovernext3-5yearsbut
onecannotsaypreciselyhowlong
thebenefitswillbavailableandthe
exactamountofbenefits.
Thebenefitsofprepaidexpenses
canbepreciselyestimated
Insurancepremiumpaidforthe
yearending30
th
June,2006when
theaccountingyearendson31st
March,2006willbeanexampleof
prepaidexpensestotheextentof3
monthsperiodi.e.1
st
April,2006to
30
th
June,2006.
Asija& Associates Chartered Accountants

9. CAPITAL INCOME
Receiptswhicharenotobtainedincourseofnormal
businessactivitiesarerevenuereceiptsthatisreceipts
whicharenotrevenueinnaturearecapitalreceipts.
Eg:Receiptsfromsaleoffixedassetsorinvestments,
securedorunsecuredloans,owners,contributionetc.
CapitalreceiptsarenotdirectlycreditedtoP&Laccount
Asija& Associates Chartered Accountants

10. REVENUE INCOME
Receiptswhichareobtainedincourseofnormalbusiness
activitiesarerevenuereceipts.
RevenuereceiptsarecreditedtoP&LAccount.
Eg:Receiptsfromsaleofgoodsorservices,interest
income.
Asija& Associates Chartered Accountants

11. THANK YOU
Asija& Associates Chartered Accountants