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    Capital vs. Revenue Income/Expenditure

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    Viren Deshpande
    The document discusses the differences between capital and revenue income/expenditure and receipts/payments. Capital items do not arise from ordinary business operations and provide long-term benefits, while revenue items occur regularly through normal business activities and provide benefits within a single accounting year. Proper classification is important for determining true profit/loss and the company's financial position. Examples are provided to illustrate capital versus revenue classifications.

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    Capital vs. Revenue Income/Expenditure

    Uploaded by

    Viren Deshpande
    52 views9 pages
    The document discusses the differences between capital and revenue income/expenditure and receipts/payments. Capital items do not arise from ordinary business operations and provide long-term benefits, while revenue items occur regularly through normal business activities and provide benefits within a single accounting year. Proper classification is important for determining true profit/loss and the company's financial position. Examples are provided to illustrate capital versus revenue classifications.

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    RevRecog

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    The document discusses the differences between capital and revenue income/expenditure and receipts/payments. Capital items do not arise from ordinary business operations and provide long-term benefits, while revenue items occur regularly through normal business activities and provide benefits within a single accounting year. Proper classification is important for determining true profit/loss and the company's financial position. Examples are provided to illustrate capital versus revenue classifications.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    52 views9 pages

    Capital vs. Revenue Income/Expenditure

    Uploaded by

    Viren Deshpande
    The document discusses the differences between capital and revenue income/expenditure and receipts/payments. Capital items do not arise from ordinary business operations and provide long-term benefits, while revenue items occur regularly through normal business activities and provide benefits within a single accounting year. Proper classification is important for determining true profit/loss and the company's financial position. Examples are provided to illustrate capital versus revenue classifications.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 9

    Capital Vs.

    Revenue
    Income/Expenditure
     The process of determining profit or loss made
    involves matching of revenue and expenses.
    This requires understanding the nature of
    different types of income and expenditure,
    receipts and payments.
     Differentiating capital and revenue expenditure
    is important to get a true and fair view of profit /
    loss and financial position of a company
    Revenue Recognition

    Capital v/s Revenue expenses


    Classification of Income

    Income

    Revenue Income Capital Income

    Arises out of and Does not arise out of


    in the ordinary and in the ordinary course
    course of of the business. Treated as
    business. Treated Capital Gain, i.e. Non-
    as Operating operating Income of the
    Income of the business
    business.
    Classification of Expenditure

    Expenditure

    Deferred
    Capital Revenue
    Revenue
    Expenditure Expenditure
    Expenditure
    Incurred to obtain Incurred in the ordinary Revenue exp the
    long-term benefit course of business Benefit of which extends
    for the business, e.g. Transactions, the benefit of Beyond the current
    acquisition of assets, which gets exhausted in the Accounting year.
    or results in increasing same year in which it is e.g. R & D expenses.
    Earning capacity of Incurred. e.g. Mfg. Costs, Advertisement Exp for
    the business. Goods Purchased for resale, Introducing new products.
    Admin. Exp.
    Distinction between capital and revenue
    expenditure

    Capital Expenditure
    Revenue expenditure
     For acquisition of fixed  Day to day operations of
    assets business
     Enhancing earning capacity  Maintaining the earning
    of business capacity of business
     Non-recurring nature  Recurring nature
     Accounting treatment:  Accounting treatment:
    A small part charged to P/L
    Entirely charged to P/L
    a/c and balance shown in
    the B/S as an asset.
    a/c of the relevant year
    Deferred revenue expenditure
     It is actually a revenue expenditure, the
    benefit of which extends beyond one
    accounting period e.g. preliminary
    expenditure,Heavy advt. expenditure,R&D
    expenditure
     Deferred revenue expenditure is spread
    over the productive life, i.e. every year a
    specific amount is debited to P/L a/c and
    the balance(to the extent not written off)
    are shown on the asset side of the
    balance sheet.
    Classification of Receipts

    Receipts

    Capital Revenue
    Receipts Receipts

    A receipt from owners A receipt other than a


    of business by way of capital receipt. A receipt in
    Additional capital or from The ordinary course of
    Sale of fixed assets of Running the business, e.g. A
    Business. receipt from sale of products
    or provision of service.
    Examples
     Funds raised by issue of equity shares
     Legal expense for recovering dues from debtors
     Freight and wages for installation of fixed asset
     Interest on capital paid during construction of
    building
     Expenditure on replacing a worn out part of
    machinery
    Examples
     Expenditure on plant to make it energy
    efficient
     Expenditure on enhancing production
    capacity of a machinery
     Research expenditure which could not be
    successful
     Legal expenses in purchasing land
    property
     Legal expenses incurred in an income tax
    appeal

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