Concept of capital and revenue

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

1. Capital Expenditure
2. Capital Exp.
3. Revenue Expenditure
4. Deffered revenue Exp.
5. 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....

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?

Compensation paid to retrenched employee may be a deffered revenue expenditure.

For more info read about Deffered revenue Expenditure on above.