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Accountin G Expend Itures: Capital Expenditure and Revenue Expenditure Reference: Chapter 6
Accountin G Expend Itures: Capital Expenditure and Revenue Expenditure Reference: Chapter 6
i ng Expe
Ac c o unt
Capital Expenditure
and Revenue Expenditure
Reference: Chapter 6
Capital Expenditures:
Are expenditures incurred in:
✔ Buying non-current assets (NCA)
✔ Adding value to the existing NCA
The accounting treatment:
✔ This expenditures must be debited to the NCA’s account
✔ NO expense account should be created (if expense account is prepared, it will not show an
increase in the value of NCA)
Effect of the expenditures:
Increase NCA value, thus increase total Assets in the Balance Sheet
Examples of Capital Expenditure:
✔ Cost of buying NCA
✔ Extension cost on building
✔ Cost to require vehicle’s plate number
✔ Carriage inwards
✔ Insurance on purchases
✔ Import duties
✔ Installation cost:
o Installation of radio/CD player into vehicles
o Installation of air-conditioner
o Installation cost in order to improve efficiency of existing NCA
o Installation cost incurred for safety reasons
Revenue Expenditures:
Are expenditures incurred in:
✔ The running of a business in a daily basis.
✔ It will not increase the value of NCA held by the business.
The accounting treatment:
✔ Relevant expenses account must be prepared and
✔ These expenditures must be debited to the relevant expenses account.
Effect of the expenditures:
Increase expenses in Income Statement, thus decreasing net profit value
Examples of Revenue Expenditure:
✔ All types of expenses recorded in the Income Statement as the operating
expenses:
o Petrol cost of NCA
o Repair and maintenance on NCA
o Repainting of building
o Renewal of insurance/road tax
o Promotion & Advertising costs
o Cost of paying monthly installments
o Carriage outwards
Tutorial
Questions:
Identify whether
the following are
Capital
Expenditure
(CE) or Revenue
No. Expenditures CE or RE
1 Office furniture bought for office use
2 Acquisition of land and building
3 Renovation cost of existing shop house
4 Cost of buying the cash register
5 Cost of buying the soft drinks vending machine
6 Cost of buying the soft drinks into the vending machine
7 Cost of reloading credit to mobile phone
8 Expenses incurred for entertainment of clients
9 Cost to purchase stock of goods
10 Transportation cost paid to bring in the goods to the office
premise
11 Freight outwards
12 Cost of putting extra headlight to a vehicle
13 Preliminary expenses
14 Payments of worker’s salary, wages and bonuses
15 Acquisition of new motor vehicles
16 Road tax and insurance renewal for one year
17 Cost of repainting building
18 Duties on purchases
19 Installation of brake lock/ gear lock to a vehicle
20 Major renovation expenses