Assignment 2

Name Usman Khalid

Sap Id 70071282
Subject Business Law & Taxation

Teacher CH Ahtesham

Submitted Date 2-11-2021

What is the difference between Capital & Revenue Expenditure? Elaborate
with examples
Capital Expenditures with example.
Definition;
An expenditure is a capital expenditure if the benefit of the expenditure extends to several
trading years. Capital expenditure may include different types of expenditures, each of
which is shown as an asset in the balance sheet.
First, expenditures incurred on the acquisition of fixed assets (tangible or intangible), which
the business uses to earn profit and not for resale (e.g., land and buildings, plant and
machinery, furniture and fixtures, goodwill, patent rights, and copyrights).

Second, the cost of fixed assets would include all expenditures necessary up to the time the
asset is ready for use. For instance, the cost of all buildings purchased would include the
price paid to the seller, legal charges, and the broker’s commission.

Examples of Capital Expenditures

• Purchase of factories and buildings

• Purchase of machines, furniture, motor vehicles, or office equipment
• Cost of goodwill, trademarks, patents, copyrights, patents, and designs
• Expenditure on installation of plant and machinery and other office equipment
• Additions or extension of existing fixed assets
• Structural improvement or alterations to fixed assets that increase their lifetime or
earning capacity
• Preliminary expenses of a limited company
• Cost of issue of shares and debentures
• Legal expenses on loans and mortgages
• Interest on capital during construction periods
• Development expenses (e.g., for mines and plantations)
Revenue Expenditures

Definition and Explanation of Revenue Expenditures

An item of expenditure for which the benefit expires within the year is classed as revenue
expenditure. Revenue expenditure does not increase the efficiency of the firm.

• Expenditures incurred for the purpose of floating assets (i.e., asset for resale purposes
such as cost of merchandise, raw materials, and stores required for manufacturing
process).

• All establishment and other day-to-day expenses incurred in the operation and
administration of the business (e.g., salaries, rent, taxes, postage, stationery, bank
charges, insurance, and advertisement charges).

• Expenditures incurred to maintain fixed assets in proper working condition (e.g.,

repairs, replacement, and renewals for buildings, furniture, and machinery).

Examples of Revenue Expenditures

• Wages paid to manufacture products for sale

Depreciation of assets used in business

•
Interest on business loans
•
Freight and cartage paid on merchandise purchased
•
Cost of oil to lubricate machinery
•
Vehicle servicing
•
Any expenditures incurred in defending lawsuits relating to the sale or purchase of
merchandise