Capital & Revenue Expenditure (Cambridge International A-Level Accounting)

Spec point — the difference between the treatment of capital and revenue income and capital and revenue expenditure

Capital & revenue expenditure

What is capital expenditure?

• Capital expenditure is money that is spent on non-current assets for the long-term benefit of the business

• Capital expenditure includes:

  • The purchase of non-current assets

  • The delivery of non-current assets

  • The installation of non-current assets

  • The legal costs incurred with the non-current asset purchases

  • The decoration of new non-current assets

  • The extension of non-current assets

    • e.g. increasing the size of a storage warehouse

• Capital expenditure is included in the statement of financial position under the non-current assets section

  • It is not included in the statement of profit or loss

What is revenue expenditure?

• Revenue expenditure is money that is spent on the day-to-day running costs of the business

• Revenue expenditure includes:

  • The purchase of goods for resale
  • General expenses
  • Insurance
  • Training costs
  • Repairs of non-current assets
  • Redecoration of existing non-current assets

• Revenue expenditure is included in the statement of profit or loss

  • It is not included in the statement of financial position
  • However, it will contribute to the profit or loss for the year, which is recorded in the statement of financial position

Worked Example Ajax buys a new vehicle. The following table shows the payments Ajax has made.

	$
Cost of the vehicle	27 500
Delivery cost of the vehicle	300
Insurance	800
Fuel costs	400

How much is the capital expenditure?

Answer:

Identify whether each cost contributes to revenue expenditure or capital expenditure

	Type of expenditure
Cost of the vehicle	Capital
Delivery cost of the vehicle	Capital
Insurance	Revenue
Fuel costs	Revenue

Add together the costs that contribute to capital expenditure

$27 500 + $300 = $27 800