Question

examples of capital expenditure

Answer 1

capital expenditure means it contributes to the revenue earning capacityof the bussiness over more then one accounting period where as revenue expenses is incurred to generate revenue for a particular accounting peroiod

BASED ON THE FOLLOWING YOU CAN DETERMINE A PARTICULAR EXPENDUTURE AS A CAPITAL OR REVENUE

NATURE OF BUSSINESS;if you dealing in a furniture, purchase of furniture is revenue expenses but for others its a capital expentiture

RECURRING NATURE OF EXPENSES ;if the frequency of expenses is quite often in a accounting year (like salaries ,rent)then it is revenue in nature while non recurring expenses (like purchases of plant ,building etc) are capital expenditures

BASED ON REVENUE GENERATING CAPACITY:if the expenses helps to generate income more than one accounting period then it is capital expentiture if not revenue

PURPOSE OF EXPENSES: it is very importanat if the expenditure is enhance the capacity or productivity of an asset or bussiness it is capital in nature but if expenses incurred in course of normal maintainence it is revenue

for examplr if a bike give a miliage 100 km per liter if the expenditure to to enhance its capacity will be capital expentiture .after two years it gives 80 km per liture then expenses ncurrede to make it to give 100 km per liture is revenue in nature because it is not enhancing its capicity but if it is incurred to to increase its milage to 120 kmper lituer it is capital beacaues it is incurred for enchancing its capicity

MATERIALITY: if the amount incurred is material even if doesnot increases its capicity then it is to be capitilised because of materiality

CAPITAL EXPENDITURE MAY REPRESENT ACQUESTION OF TANGIBLE OR INTANGIBLE FIXED ASSETS FOR ENDURING FUTURE BENFITS

EXAMPLES OF CAPITAL EXPENDITURE ARE

• purchasing of new plant and purchasig of old plant and overhaul expenses to put second hand machinary in working condition is also capital expentiture because it is giving longtern advantage
• legal fee paid to acquire a property
• expenses in connection with obtaining license (without this we cannot start the buiseness)
• cost of a temporary hut which is mandateory for a bussinesses (or toconstruct building)
• amount spent on demolition of building to construct new building
• expenditure spent on director abrod trip to purchaes of capital asset
• expense incurred on account of transport of fixed asset is capital expentiture
• any expenditure which is incurred to make the asset READY for use ready is a capital expentiture(wages incurred to installation, trasport expenses )
• trail run expsense becauese without this it cannot be ready for use
• INTEREST ON LOAN TO ACQUIRE CAPITAL ASSET is capital expenditure

​CAPITAL EXPENDITURE MAY REPRESENT ACQUESTION OF TANGIBLE OR INTANGIBLE FIXED ASSETS FOR ENDURING FUTURE BENFITS

​the heavy advertising with regards to launch of new product to explore new market will last generally for more than one accounting period but it does not create any property of tangible or intangible nature and so expenditure is spread over the period for which its effect would remain .this type of expenditure is called deferred revenue expenditure (advertisement is deffered revenue expenditure)