Capital and Revenue Expenditure: Rules to Determine Capital and Revenue Expenditure
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Image of Capital and Revenue Expenditure
Image of Capital and revenue Expenditure
Image of Capital and Revenue Expenditure
Image of Capital and revenue Expenditure
Capital and revenue Expenditure: Rules to determine capital and revenue expenditure (Commerce)
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Transaction: The exchange of money or money’s Worth for goods and services.
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Expenditure: money spent for the purpose of Running the business.
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Capital: Those assets which are used for production of goods and rendering of services for further production of assets. Capital is something which renders benefit for the long term.
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Revenue: The money earned from various sources of business.
Transaction: Exchange of Money
Transaction: Exchange of money
Image of the Exchange of Money
Image of The exchange of money
Image of the Exchange of Money
Image of The exchange of money
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Capital Expenditure: Expenditure incurred to acquire an asset which would provide benefit to the firm of more accounting period. The expenditure incurred should be:
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For the purchase or improvement of fixed asset
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Asset should not be for resale
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Revenue Expenditure: Outflow of funds to meet running expenses of the business is called Revenue expenditure.
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Rules to determine capital and revenue expenditure
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Capital expenditure:
Image of Π Capital Expenditure
Image of ϖ Capital expenditure
Revenue Expenditure
Image of Revenue Expenditure
Image of Revenue Expenditure
Need for Distinction between Capital and Revenue Expenditure
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To find true profit or loss of the business.
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Wrong categorization can lead to incorrect value for expenses, net profit and the value of the assets. For example if and expenditure on a building is incorrectly categorized as revenue rather than expense, the expenses would be overstated and the profit understated while the assets will also be understated.
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For taxation benefit.
#UGC NET Commerce
#Accounting
#Capital Expenditure
-Manishika