Beruflich Dokumente
Kultur Dokumente
Learning Objectives: 1. Define and explain capital expenditures Expenditure means the amount spent. Any expenditure incurred for the following purposes iscapital expenditure: 1. For acquiring fixed assets such as land, building, plant and machinery, furniture and fitting and motor ehicles. !hese assets should not be acquired with a iew to resell them at a profit but to retain in the business. !he cost of fixed asset would include all expenditure up to the asset becomes ready for use. ". For ma#ing impro ement and extensions to the fixed asset e.g., additions to buildings. $. For increasing the earning capacity of a business or for reducing the cost of manufacture, administration or distribution in a business e.g., expenditure incurred in remo ing the business to a central locality or compensation paid to retrenched employee. %. For raising capital monies for the business such as bro#erage paid for arranging loans, discount on issue of shares and debentures, underwriting commission etc. All capital expenditures represent either an asset or liability and are shown in the balance sheet.
Expenses for de elopments in case of mines and plantations. Expenses for administration incurred during construction and equipment of any industrial enterprise. Expenses incurred in experimenting which finally result in the acquisition of a patent or other rights.
Revenue Expenditures:
Learning Objectives: 1. Define and explain re enue expenditures
*nterest on loans borrowed for business. )oss from sale of fixed assets. Fees for renewal of patent rights, etc. +p,#eep and maintenance of motor car and an. -aintenance of fan and lights. .oo# alue of assets discarded or totally damaged or destroyed by fire or other reasons.
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0either an asset is acquired nor the alue of an asset is increased. *t occurs repeatedly , *t is recurring and regular. *t has no physical existence, i.e., it cannot be seen with eyes. !his expenditure helps to maintain the concern !he whole amount of this expenditure is shown in trading and profit and loss account or income and expense account. .ut deferred re enue expenditures and prepaid expenses are not shown. *t does not appear in balance sheet. Deferred re enue expenditure, outstanding expenditure, outstanding expenses and prepaid expenses, howe er, temporarily shown in the balance sheet. *t reduces re enue. 6ayment of
$ % 2 3
$ % 2 3
7ome 8 &apital and 9e enue 8 &apital and 9e enue receipts, 6ayments, 6rofits, and )osses
Example:
*f a building is purchased for <"=,=== from > and <1=,=== is paid in cash and the remaining sum to be paid after six months? <"=,=== is capital expenditure, but <1=,=== is only capital payment. 'imilarly if goods are purchased from > for $=,=== and <12,=== is paid in cash? <$=,=== is re enue expenditure but only <12,=== is re enue payment.
Le&al C'ar&es:
!hese are, as a rule, re enue charges, but legal charges incurred in connection with the purchase of a fixed asset are capital expenditures as they form an additional cost of the asset acquired.
(a&es:
(ages are ordinary a re enue expenditure. .ut in a manufacturing business where the firm@s own men are employed in ma#ing of fixed asset, the wages paid for such purpose would be capitali;ed. For example if the firm@s own men are employed in ma#ing extension to the factory building or in erection of plant or manufacturing tools for own requirements. the wages and salaries paid to the persons are not re enue but capital expenditures.
#dvertisin&:
Ardinarily amount expended on ad ertising is re enue charge but the cost of special ad ertising underta#en for the purpose of introducing a new line of goods may be capitali;ed.
Development Expense:
*n concern li#e collieries, mines, tea, rubber etc., all expenses incurred during the period of de elopment are treated as capital.
Preliminar Expenses:
!hese are the expenses incurred in connection with the formation of a public company. !hese expenses although are re enue in nature but are allowed to be capitali;ed and can be shown as an asset in the balance sheet.