Topic 2 Capital Expenditure & Revenue Expenditure.pptx

Edexcel International (IAL- AS) Capital expenditure, Revenue expenditure, Capital receipts & revenue receipts

1. Capital Expenditure & Revenue Expenditure

2. Learning Objectives explain the difference between capital expenditure and revenue expenditure. identify the correct accounting treatment for capital expenditure and revenue expenditure, referring to appropriate accounting concepts explain the difference between capital income and revenue income

3. Amount spent on the purchase, alteration or improvement of NCA. Eg : Delivery costs Installation costs Legal costs incurred in obtaining the asset The cost of improving the asset (but not repairs to the asset). Capital Expenditure

4. Amount spent on the day-to-day running expenses of the business Eg : insurance relating to the use of the asset maintenance costs-repairs running costs – for example, petrol for motor vehicles staff training in the use of the asset . Revenue Expenditure

5. Capital Expenditure Revenue Expenditure Delivery Costs Road tax, Vehicle tax Sign writing of business name Insurance New engine Staff training to the use of assets Extension of building Redecoration Refurbication Employ an additional sales assistant. building an extension to the lounge Purchase of inventory Purchase an electronic bar code system for inventory Road license Advertising signage   5

6. Capital Expenditure Revenue Expenditure Initial costs & alteration & upgradation costs of NCA Maintenance & running costs of NCA Shown in SFP under the heading NCA Appears in the SPL under Expenses Normally it is one-off purchase cost or non-recurring nature It is recurring nature/ day-to-day running expenses Amount spent for the increase in the value of NCA Amount spent for maintaining the NCA

7. Capital Receipts & Revenue Receipts Capital receipts F unds received by the business that are not part of its operating activities. Capital receipts are non-recurring and non-routine. When a non-current asset is sold, the money received is a capital receipt .   Revenue receipts Funds arise from the normal operating activities of the business and are recurring. Therefore, income received from the day-to-day activities of the business 7

8. Effect on Assets & Profits due to the following errors Capital receipt treated as revenue receipt Non-current assets will be overstated. Revenue will be overstated and thus profit also will be overstated.   Revenue receipt treated as capital receipt Non-current assets will be understated. Revenue will be understated and therefore capital will be understated. 8

9. T he of effect on profit and assets due to the following errors .   Capital expenditure treated as revenue expenditure Non-current assets will be understated. Expenses will be overstated as a result profit will be understated .   Revenue expenditure treated as capital expenditure Non-current assets will be overstated. Expenses will be understated as a result profit will be overstated .