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Concept of capital and revenue

shweta (student) (91 Points)

13 September 2016

Can someone please mention with reasons whether the following expenditure are capital, revenue or deferred revenue:-

1. Rs 7,000 being expenses on issue of shares

2. Labour welfare expenses

3. Compensation paid to retrenched for loss of employment

4. Received financial aid from state government

5. Discount allowed on issue of shares and debentures

(Answer with Reason is much appreciated)

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S.K.Jha (student) (265 Points)
Replied 14 September 2016

Dear Shweta,

Let's understand few concept before analysing about the type of expenditure..

Business transaction is of 2 types:

Apart from this there is Deffered Revenue Expenditure.

Since you are asking about the expenditure so i am writing here only about Expenditure..

Capital Expenditure:

Those expenditure which gives benefit for more than one year. For e.g.,

Fixed asset purchased,
Any expenditure on fixed asset which increases PROFIT either by way of Efficiency increase or Reduced cost of operation or both.

Revenue Expenditure:

Those expenditure which gives benefit for one accounting year only. For e.g., Compensation paid to employees.

Deffered Revenue Expenditure:

Those expenditure which gives benefit for more than one year AND expenditure not incurred on Fixed Asset.

Whether a particular expense is CAPITAL or not, in order to find the answer of this question check following conditions ...

Exp. must give benefits for more than ONE year AND
Exp. must be on FIXED ASSET
Exp. must increase the PROFIT
Expenditure must increse the value of ASSET.

If above conditions is satisfied then it is capital in nature.

ANSWER TO YOUR QUERY

Capital Expenditure
Capital Exp.
Revenue Expenditure
Deffered revenue Exp.
Capital exp. ( It is a Capital loss)

For reason please read the whole article. I hope this will help you in order to understand the above mentioned topic....

shweta (student) (91 Points)
Replied 14 September 2016

First of all thank you so much for taking out your time and answering my question, that was so helpful, i want to know whether expense incurred on issue of shares and compensation paid to retrenched employee can be of deferred revenue nature?

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