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Capital expenditure
Expenditure incurred which will :
a)1-Increase Production capacity
b)2-Increase earning capacity
c)3-Reduction in the cost of operation.
Example: purchase of fixed assets
Purchase of Machinery
purchase of investment
If such expenditure is not to do with the basic functions of the business such expenditure is capital expenditure.
How do you consider if you buy goodwill, copy right or patent right?
REVENUE EXPENDITURE
•Expenditure incurred which will :
1-Not Increase Production capacity 2-Not Increase earning capacity
3-maintain the capacity
No Depreciation is provided on current assets which will appear in the profit and loss account
They appear in the profit and loss account
The life is not more than one year
They should not appear in the balance sheet
Deferred revenue expenditure
•Deferred means- postponed
•Heavy revenue expenditure
•Vodafone incurred 200 crores for advertisement after merger with Hutch
•It can not be written off within a year
•It appears in the balance sheet as last item
•Every year some amount is written off in the profit and loss account.
•Research and development expenditure, initial advertisement expenditure, preliminary expenditure are example
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