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Capital or revenue expenditure

Sanjeev Parasrampuria (B.Com CA Final CS Final) (273 Points)

28 November 2012

Payment of Rs.60000 as compensation for cancillation of a contract for the purchase of machinery with a view to avoid an unnecessary expenditure.

1.Whether it is Capital or Revenue expenditure?

2.If Capital Expenditure then what is treatement for the same?

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9 Replies

V Vara Prasad (Chartered Accountant) (212 Points)
Replied 28 November 2012

It is a revenue expenditure

Sanjeev Parasrampuria (B.Com CA Final CS Final) (273 Points)
Replied 28 November 2012

Dear V V Prasad,

In CS Scanner give that it is Capital Expenditure and i also thought that is is nature of capital because it is for cancilation of capital nature contract.

But i want to know that its treatement????

Bhaskar Unnikrishnan CPA CMA (Accounts / Administration) (414 Points)
Replied 28 November 2012

Its purely Revenue expenditure. You have to expense it the year it incurred.

Bhaskar Unnikrishnan CPA CMA (Accounts / Administration) (414 Points)
Replied 29 November 2012

Being Rs 60,000 is a significant figure, it should be considered as Extra ORdinary Expenses for Comparison purposes as well.

Nithin Chettoor (Assistant Manager) (388 Points)
Replied 29 November 2012

the nature of the transaction for which payment is made is not significant always. The main criteria is whether such payment results in a benefit or asset which generates futur revenue more than an year or so. Since this payment does not result in any kind of asset or benefit in future. Hence its a revenue expenditure.

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CA PRAVEEN SINGH (MANAGER ACCOUNTS) (2277 Points)
Replied 29 November 2012

Originally posted by : Nithin Chettoor
	the nature of the transaction for which payment is made is not significant always. The main criteria is whether such payment results in a benefit or asset which generates futur revenue more than an year or so. Since this payment does not result in any kind of asset or benefit in future. Hence its a revenue expenditure.

agree

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Rishabh Mishra (Student CA Final ) (44 Points)
Replied 29 November 2012

it is a revenue expenditure my dear

as this transaction do not result in increase in assets or reduction of liab.(conditions for the capital expenditure)...... therefore revenur expenditure.