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Capital expenditure

Others 817 views 6 replies

Anshuman

Article Assistant

87 Points Joined February 2014

If a machine is producing 10000 units due to sudden defect in the machine in a particular month with a standard set at 16000 units/month, any expenditure done on such machine which increases the production to 14000 units/month.

What should be the classification of such expenditure? Capital OR Revenue expenditure.

Also, the producing capacity of the machine when it was purchased was 20000 units/month.

Thanks in advance,

Anshuman Prasad

Replies (6)

Nitish Agrawal

810 Points Joined November 2010

Expenditure wil be capitalised only if it increases the capacity to beyond previously assessed std..since in the given case previous standard was 16000 so Expenditure should not be capitalised...it will be revenue expenditure....

Nihar Ranjan Rout

CA Final & CS Final

577 Points Joined August 2012

It is a revenue expenditure since the extra cost never resulted in an increased capacity than its original capacity.

sanjeev

Assistant manager

28 Points Joined July 2014

sanjeev kandhai cma

arun

mcom

32 Points Joined April 2015

Revenue because it increase d production capacity....it give same pro in all d months...

vaibhav

student

221 Points Joined July 2010

You cant treat it as capital expediture.As any expenditure can be treated as a capital expenditure only if the expenditure increases the production beyond its standard capacity. Hence all the expenditure incurred which brings the production capacity at par with the standard capacity cannt be capitalised.