Capital Expenditure And Revenue Expenditure

1608 Words Jan 12th, 2016 7 Pages
1 INTRODUCTION
The aim of this report is to distinguish between capital expenditure and revenue expenditure and to explain the accounting treatment of different transactions. The classification of expenditures as capital or revenue will have an impact on the statements of financial position and comprehensive income. Therefore, when preparing financial statements, accountants need to adhere to and comply with the rules and regulations set out by the International Accounting Standards Board (IASB). As such, the report is limited to discussing the various expenditures covered by accounting standards. Furthermore, the report identifies what items can be recorded in accounts as assets in terms with the relevant accounting standards.
2 CAPITAL VS REVENUE EXPENDITURE
The distinction between capital expenditure and revenue expenditure is vital for preparers of financial statements as only capital expenditure is included in the cost of non-current assets in the Statement of financial position. On the other hand, revenue expenditure is deducted from an entity 's ' profit in the statement of comprehensive income. Expensing an item that is normally required to be recognised as an asset under IFRS means avoiding depreciating it over time. However, this does not fall in line with the Companies Act and IAS 1 which state that published accounts must show a true and fair view of the company 's results for the period and its assets and liabilities at the end of the period. (AAT, 2014, p.…
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