Capital expenditure or revenue expenditure

If amount is immaterial. can show as Revenue expense

Ritesh,

Purchase a UPS is a CAPITAL Expenditure whereas purchase of RAM is a Revenue Expenditure and I have a question from Roopali, Please tell me what do you mean by "if amount is immaterial"

sumit is right.................

Sumit Sir

Hope this answers your question & please explain how you have considered UPS as capital and RAM as revenue exp.

Guidance Note on Accounting for Depreciation in Companies

Depreciation on low value items

P26.

• Prior to the enforcement of the Companies (Amendment) Act, 1988, many companies used to follow the practice of writing off low value items in the year of acquisition, since such a write off was permitted under the Income-tax Act.
• The limit for such a write off was Rs. 5,000/-. Schedule XIV is, however, silent on this aspect.
• The Committee is of the view that the concept of materiality should be kept in mind while deciding the amounts to be written off in this regard.
  • For instance, in small companies, the total write off on this basis may be a substantial figure, it may not, therefore, be proper to charge 100% depreciation on low value items.
  • However, in large companies, where the value of assets is very high, it may be proper to charge 100% depreciation on low value items keeping in view the concept of materiality.
• The Committee recommends that the accounting policy followed by the company in this regard should be disclosed appropriately in the accounts.

https://icai.org/resource_file/13133Annexure-I_AASB_25092008.pdf

Ref. Para 5.Guidance Note are recommendatory in nature.A member should ordinarily follow recommendations in a guidance note, else disclosure may require

As 10 Para 8.1 Identification of Fixed Assets.

"An enterprise may decide to expense an item which could otherwise have been included as fixed asset, because the amount of expenditure is not-material "

& capital Expenditure is also defined in Guidance Note (Recommendatory in nature). Is it defined in any AS?

Capital expenditures (CAPEX or capex) are expenditures creating future benefits. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life extending beyond one year.

Have you seen any Calculator A/c as Fixed Asset in any books?

If Ram Purchased is of higher capacity as compared to previous one, Can't v classify it as capital exp., since such higher capacity ram will enhance processing speed... thereby increasing processing capacity ...and yaa wht rate of depn u will apply on ups, as in one case study i saw if ups is integral part of comp. system where computer operations couldn't be carried on without d use of ups then 60% rate will apply....else treated as machinery (15%)...