CAPITAL AND REVENUE EXPENDITURES
Capital Expenditures
 Investment made by the business for
purchasing any tangible fixed asset(s). for
example; purchase of building, machinery,
equipment, furniture, plant assets, etc.
 These assets are acquired not for resale
purpose
 They are long lived assets (i.e. life more
than one year).
 They are shown in balance sheet.
Other Capital Expenditures
 Sales Tax
 Custom duty
 Installation charges
 Insurance in transit
 Transportation / carriage/freight in
 Registration charges
 Labor charges / foundation cost
 Camel cart charges / Octroi charges
 Package charges
 Etc.
Revenue Expenditures
 Revenue expenditures are the
routine expenses incurred in the
business.
 They are shown in income
statement. For example; rent
expenses, salaries expenses, repair
expenses ….
 Repair Expenses: Incase if any part
of the asset is damaged during
installation or during loading or
unloading.
 Any future insurance: For example,
fire insurance, etc.
 License fee
 Etc.
 How to calculate cost of any tangible fixed assets
X corporation has purchased a machine at a list price Rs. 200,000 with 10% trade discount.
The business also availed terms and conditions of cash discount i.e. 2/15 , n/45. X corporation
has paid cash within discount period.
Following expenses also incurred while purchased of machine:
I. 5% sales tax
II. Installation charges Rs. 1,000
III. Transportation cost Rs. 3,000
IV. Fire insurance incurred Rs. 6,000
V. Certain part of machine is damaged during installation costing Rs. 2,000.
VI. Registration cost Rs. 5,000
2/15, n/45: 2% cash discount is
Required: offered if payment is made
a. Compute cost of machine within 15 days or otherwise no
b. Record necessary general journal entries. discount is offered and
payment should be made
within 45 days.
 X Corporation
Computation of Cost of Machine
List Price……………………………………..Rs. 200,000
Trade discount (200,000 x 10%).. (20,000)
Trade Price 180,000
Cash discount (180,000 x 2%) (3,600)
Cash Price / Bill price / Invoice costs 176,400
ADD: OTHER CAPITAL EXPENDITURES
Sales Tax (176,400 x 5% ) Rs. 8,820
Installation charges 1,000
Transportation cost 3,000
Registration cost 5,000
Total other capital expenditures 17,820
Total Cost of Machine Rs. 194,220

X Corporation
General Journal

1. Machine 176,400
Cash 176,400
(Purchased of machine at cash)

2. Sales Tax 8,820

Installation charges 1,000
Transportation cost 3,000
Registration cost 5,000
Cash 17,820
(Expenses incurred on machine)

3. Machine 17,820
Sales Tax 8,820
Installation charges 1,000
Transportation cost 3,000
Registration cost 5,000
(Close all expenses incurred
On machine)

4. Fire Insurance 6,000

Repair cost 2,000
Cash 8,000
(Paid fire insurance and
repair cost)

Marine Insurance

Example – 2
National company acquired a machine on January 01, 2005 at a list price of Rs. 565, 000 with a trade
discount of 2%. The terms of payment was 3/10, n/30, including a sales tax of 4%. The Co. availed the
concession period of payment. The Co. also incurred the following expenses:
Transportation charges Rs. 15,000
Installation and testing charges Rs. 20,000
Package charges Rs. 5,000
Insurance in transit Rs. 25,000

The company also paid Rs. 3,500 as a fine on account of negligent driving by one of the company’s driver
while transporting the machinery. During installation work of the machinery, adjacent machinery was
damaged and repair cost paid Rs. 9,000. License fee paid for the operation of the machinery Rs. 30,000 for
the current year. An amount of Rs. 24,400 was paid as fire insurance premium on a three years policy.

Example – 3 (H.W)
ABC Trader acquired a machine on Oct. 01, 2007 at a list price of Rs. 400,000 with a trade discount of 5%.
The terms of payment was 2/15, n/45, including a sales tax of 6%. The Co. availed the concession period
of payment. The Co. also incurred the following expenses:

Freight charges Rs. 15,000

Labor charger Rs. 10,000
Installation charges Rs. 20,000
Insurance in transit Rs. 25,000
An amount of Rs. 24,400 was paid as fire insurance premium on a three years policy
During installation certain parts of machine was damaged and repair cost paid Rs. 10,000

Example – 4 (H.W)
ZEE & Co. purchased a machine on July 1, 2011 at the list price of Rs. 400,000 with terms 2/10, n/30. The
company paid the following additional expenses in acquisition of the machine on the same date.

Sales tax 15% of cash price.

Freight charges Rs. 25,000.
Transportation cost from the Railway station to the factory Rs. 4,000.
Installation charges Rs. 9,000.
Fire insurance for 5 years Rs. 50,000.

Required
Compute the cost of machine, and pass general journal entries to record the acquisition of machine.