Classify capital expenditure and revenue

expenditure
Capital expenditure Revenue expenditure
- Results in the acquisition of non- -For the purpose of trade of the business
current assets, or an improvement in their -Maintain the existing earning capacity
earning capacity of non-current assets
-Appearance of a non-current asset in the -Appearance of expenses in the SOPL of
SOFP of the business the business

-Directly attributable costs such as initial -It can be classified as

delivery costs, installation costs and • selling and distribution expenses;
professional fees. • administration expenses; or
• finance charges
- Provides long-term benefits -is trading costs relating to short-term
 Example:
A business has $110,000 worth of machinery on 1 January 2016 at cost. Its policy
to charge depreciation at 20% per annum straight line. The total accumulated
depreciation now stands at $70,000. The business now sells for $19,000 a machine
which it purchased exactly two year ago for $30,000.
Machinery Machinery: accumulated depreciation
2018 $ 2018 $ 2018 $ 2018 $
Jan 1 Balance b/d 110,000 Jan31 Disposal of Jan 31Disposal of Jan 1 Balance b/d 70,000
machine 30,000 machine 12,000
Dis 31 Balance c/d 80,000 Dis 31 Balance c/d 58,000

110,000 110,000 70,000 70,000

2019
2019
Jan 1 Balance b/d 80,000 Machinery: disposal Jan 1 Balance b/d 58,000
2018 $ 2018 $
Jan 31 Machinery 30,000 Jan 31 Depreciation 12,000
Dis31 SOPL 1,000 Cash 19,000
31,000 31,000