A Study On Capital Expenditure

1493 Words Jan 11th, 2016 6 Pages
Harold Averkamp, a university lecturer explains capital expenditure as the amount spent to either obtain or improve a long-term asset such as a building. This cost is recorded in an account that is classified as Property. Apart from the cost of land ever other cost is charged to the depreciation expense over the useful life period of the asset.
A revenue expenditure on the other hand is an amount that is used immediately. For example; routine repairs, these are revenue expenditures due to the fact that they’re charged directly to an account such as Maintenance Expense. Even if the repair doesn’t extend or improve the life of the assets it’s still a revenue expenditure.
Expenditure that is on fixed assets is categorised as either capital or revenue expenditure. The difference between the two is important because only capital expenditure is included in the cost of fixed asset. Unlike revenue expenditure capital expenditure, is usually a one-off kind.
Revenue expenditure on a fixed asset includes the cost that is for retaining the asset rather than enhancing the profit capacity like capital expenditure. These are regular costs. For example, a company buys machinery for the production of cakes. The purchase and installation costs are capital expenditure but any repair and/or maintenance costs that occur in the future will be revenue expenditure.
This is because the costs for repairs and maintenance don’t increase the profit capacity (earning capacity of the machinery) but it…
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