Capital expenditure and revenue expenditure Learning objectives After you have studied this chapter you should be able to Distinguish between expenditure that is capital in nature and that which is revenue ID: 445782
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Slide1
Chapter 24
Capital expenditure and
revenue expenditureSlide2
Learning objectives
After you have studied this chapter, you should be able to
:
Distinguish between expenditure that is capital in nature and that which is revenue
expenditure
Explain why some expenditure is a mixture of capital expenditure and revenue
expenditureSlide3
Learning objectives
(Continued
)
Explain
the
effect on the financial statements and the profits shown there, if
revenue expenditure is wrongly treated as being capital expenditure, and vice
versaSlide4
Capital expenditure
Capital expenditure is incurred when a business spends money either to buy non-current assets or add to the value of an existing non-current
asset.
Included
is:
Buying the asset and bringing it into the
business
Any associated legal
costs
Carriage
inwards
Any costs needed to ready the asset for
useSlide5
Revenue expenditure
Revenue expenditure is expenditure incurred in running the business on a day-to-day
basis.Slide6
Differences between capital
and revenue expenditureSlide7
Dealing with joint expenditureSlide8
Incorrect treatment of expenditure
If
expenditure is treated incorrectly and
classified
wrongly, whether revenue as
capital
or capital as revenue, then both
the income statement and statement
of financial position figures will be wrong.Slide9
Treatment of loan interest
Where money is borrowed to finance the purchase of a non-current asset, interest will be paid on the
loan.
Loan interest is not a cost of acquiring the asset but is a cost of financing its
acquisition.
However, new rules introduced in 1993 mean that it is compulsory to capitalise interest incurred in
constructing
an
asset.Slide10
Learning outcomes
You should have now
learnt:
How to distinguish between capital expenditure and revenue
expenditure
That some items are a mixture of capital expenditure and revenue expenditure, and the total outlay need to be apportioned
accordinglySlide11
Learning outcomes
(Continued
)
That if capital expenditure or revenue expenditure is mistaken
one for
the other, then gross profit and/or net profit will be incorrectly stated, as will the capital account and non-current assets in the statement of financial
position
That if capital receipts or revenue receipts are mistaken one for the other, then gross profit and/or net profit will be incorrectly stated, as will the capital account and non-current assets in the statement of
financial
position