4.12 Capital and Revenue Expenditure

Question 1

What is Capital Expenditure?

Answer 1

Capital Expenditure is an expenditure that increases or adds value to an asset or assets in the business.

Question 2

What is Revenue Expenditure?

Answer 2

Expenditure that does not increase the value of non-current assets but is incurred in the daily running expenses of the business.

Question 3

What is Capital Receipts?

Answer 3

Capital receipts are receipts issued due to a sale of non-current assets,

Question 4

What is Revenue Receipts?

Answer 4

Revenue receipts are receipts from the normal trading activities of the business

Question 5

What will happen if capital expenditure has been incorrectly posted to revenue expenditure?(2)

Answer 5

• Profit for the year will be understated
• The statement of financial position values will not include the value of the asset.

Question 6

What will happen if Revenue Expenditure has been incorrectly posted to capital expenditure?(2)

Answer 6

• Profit for the year will be overstated.
• The statement of financial position will be overvalued.

Question 7

What is the difference between revenue expenditure and capital expenditure?

Answer 7

-Revenue expenditure is day to day expenses (1) and is written off
against profit in the year incurred (1).
Capital expenditure is expenditure on non-current assets (1) and
appears in the statement of financial position (1).