Income tax 2022-2023 latest (urgent)

The differences between capital expenditure and revenue expenditure:

1. Capital Expenditure refers to the expenditure that a firm incurs to acquire and increase the value of the capital asset or to make an addition to it. Revenue Expenditure is an expenditure whose benefit exhausts within an accounting period. Also, the firm spends it during the course of regular business transactions.
2. Typically, firms derive benefits from capital expenditure over a long period. But in the case of revenue expenditure reaps benefits for a maximum period of one year i.e. 12 months.
3. As the company invests a huge amount in capital expenditure. So, we capitalize it. This means that the amount of expenditure is spread over the remaining useful life of the asset. Conversely, there is no such capitalization in the case of revenue expenditure.
4. A company incurs capital expenditure to improve its profit-earning potential. For example purchase of state-of-the-art technology-oriented capital assets for increasing production. Whereas the firm incurs revenue expenditure with an aim of maintaining the profit earning capacity of the company. For example, periodical servicing of capital assets.
5. While capital assets appear on the balance sheet. Revenue expenditures appear in the Trading and Profit and Loss account.
6. Because capital expenditures are for acquiring fixed assets, they normally involve a huge investment of funds as compared to revenue expenditure.

Comparison Chart

Here are some of their differences:

Term

Capital expenditure is a long-term investment for the organization, whereas revenue expenditure is a short-term one. Unlike revenue expenditure, organizations record capital expense as a fixed asset rather than charging it immediately. In contrast, you can pay the operational expenditure benefits within the current financial year due to their short-term nature.

Frequency

Capital expenditure is a one-time cost that organizations incur to improve the organization's efficiency and capacity, unlike revenue expenditure, which is a recurrent cost. The nature of capital expenditure being a one-time payment means that it's often a substantial amount. This may require the organization to budget and plan, which involves setting aside money for these purchases.

Approving these payments is a stringent process, meaning it's well-regulated and requires many approvals and signatures. An example of capital expenditure is purchasing land and equipment. In contrast, revenue expenditure is a payment that organizations make every month or every few months, such as employee salaries and equipment maintenance costs.

Reporting

An organization reports its revenue expenditures in an income statement, unlike capital expenditures, which it reports in a cash flow statement and balance sheet. A cash flow statement includes an organization's inflow and outflow from its operating, financing and investing activities. In contrast, an income statement defines the business's revenue and gains, including non-cash accounts, such as depreciation over a specific period.

The balance sheet displays an organization's assets and how it finances them, either by debt or equity. Capital expenditure falls under the fixed assets category on the balance sheet. You can capitalize on asset expenses but not revenue expenses. Capitalization of costs refers to recording costs on a balance sheet to defer the full impact of the expense.

Functionality

Revenue expenditure ensures the smooth functioning of fixed assets through maintenance and operational costs. Its primary function is to run the daily operations of an organization. In contrast, the primary function of capital expenditure is to acquire capital assets to grow and diversify the organization.

Physical existence

Capital expenditure can be both tangible and intangible. A tangible expense can include purchasing land or new equipment, while the intangible can include purchasing licenses or patents. In contrast, revenue expenditure doesn't have a physical presence, as it relates to daily business operations, such as payment of rent, power and employee salaries.

Tax

Capital expenditure is indirectly tax deductible, whereas revenue expenditure is directly tax deductible. Operational expenditures are short-term expenses you can fully deduct from a company's yearly taxes. In contrast, capital expenses are indirectly tax deductible, meaning that they work to reduce the company's income tax through the depreciation they generate. For example, an organization investing Rs.250,000 in a new asset it expects to run for a minimum of ten years can lead to a depreciation expense of Rs.25,000 each year, reducing its pre-tax income.

Cost

Revenue expenditure costs are typically smaller than capital expenditure. This is because purchasing assets is usually more expensive than maintaining them. For example, a company can buy a vehicle for Rs.50,000, but the maintenance costs for its daily operation, such as fuel and car servicing, may be significantly less.

Example:

Classify the following expenditures as Revenue Expenditure and Capital Expenditure.

1. Repayment of loans.

2. Expenditure on scholarships.

3. Expenditure on collection of taxes.

4. Salary paid to Navy officers.

5. Purchase of Metro coaches from Japan.

6. Amount borrowed from Russia repaid.

7. Expenditure on purchasing tables.

8. Grants given to the State Government.

9. 20% shares purchased by the Government in a Private Ltd.

10. Subsidies.

Answer:

1. It is a Capital Expenditure as it reduces the liability of the government.

2. It is a Revenue Expenditure as it neither creates any asset nor reduces any liability of the government.

3. It is a Revenue Expenditure as it neither creates any asset nor reduces any liability of the government.

4. It is a Revenue Expenditure as it neither creates any asset nor reduces any liability of the government.

5. It is a Capital Expenditure as it increases asset of the government.

6. It is a Capital Expenditure as it reduces the liability of the government.

7. It is a Capital Expenditure as it increases asset of the government.

8. It is a Revenue Expenditure as it neither creates any asset nor reduces any liability of the government.

9. It is a Capital Expenditure as it increases asset of the government.

10. It is a Revenue Expenditure as it neither creates any asset nor reduces any liability of the government.

Sir PGBP Capital receipts and revenue receipts?

CAN ANYONE POST DIFFERENCES BETWEEN CAPITAL AND REVENUE RECEIPTS UNDER PROFITS AND GAINS OF INCOME TAX ACT 1961? *ATLEAST 20 DIFFERENCES URGENT URGENT URGENT URGENT URGENT URGENT