Differences Between Capital Expenditure And Revenue Expenditure

A capital expenditure is an amount spent to acquire or improve a long-term asset such as equipment or buildings. Usually the cost is recorded in an account classified as Property, Plant and Equipment. The cost (except for the cost of land) will then be charged to depreciation expense over the useful life of the asset.

It is founded on the argument that income statements and financial position ofaccounts change with sales. Sales forecast is the key determinant of the method of percentage of sales. Based on this method, financial statements of Pro-Forma can beprepared. In addition, the Body Shop will be able to identify external financial need (EFN). In this method, the first step is usually the expression of the income statements and balance sheet accounts which differ directly with change in sales. The Body shop company will do this by dividing the balance for the accounts for (2001) by sales revenue for the current year (2001). In the Body Shop balance sheet, the accounts which are generally tied with sales are cash (calculated as 3.7%), inventories (calculated as 13.7%),and net fixed assets (calculated as 29.6%), other current assets (calculated as 4.7%),accounts receivables (calculated as 8.1%), other assets (calculated as 1.8%), and accounts payable (which is 2.9%).The overdrafts, other current liabilities, and long-term liabilities are not tied with sales directly. The change that result in these accounts depends on the method Body Shop decides to employ in raising the required amount of cash to sustain the sales growth as forecasted. For income statements, costs are also expressed as the percentage of sales. The assumption in this case is that all costs remain at a sales percentage that is fixed. The cost of sales

a. (i.) According to FASB Statement of Concepts No. 6, paragraph 25, assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. They represent probable future economic benefits controlled by the enterprise. According to FASB Statement of Concepts No 6, paragraph 80, expenses are outflows or other using up of assets or incurrences of liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major, or central, operations. Expenses are gross outflows

One of the most important parts of a business is the financial management. Each and every other company always strives to have the best management when it comes to its finances. Most organizations have come up with plans and marketing strategies. This is due to the fact tat when companies finances are poorly managed then definitely the whole company is likely to be in trouble or even come down. The financial techniques and principles in most cases comprise of quite a number of aspect for instance those that we intend to look at in this paper-the financial reporting. This will basically comprise of the quality of data and information that the company produced to some of the various stakeholders. Other than that, the paper will also analyze the financial position and performance of the organization using accounting ratios. Another important aspect of financial principles is costing. This basically entails the cost of producing goods and services in the company and how it generally affects the overall performance of the company. The paper will also delve into how important costs in the pricing strategy of the business are. It will further come up with a costing and pricing system that can help the company improve. Last but not least, we focus on the company's budgets and budgetary control. Here there are very important areas that have to be looked into, for

In the course of normal business operations certain transactions require specific treatment in accordance with generally accepted accounting procedures (GAAP). To properly prepare financial statements, the analysis of working papers is imperative to insuring compliance. Clarification of why information is needed about adjusting lower cost of market inventory on valuation, capitalizing interest on building construction, recording gain or loss on asset disposal, and adjusting goodwill for impairment is presented here.

This is a discussion of two types of accounting methods that most companies use, accrual basis or cash basis. A definition of both concepts and comparisons between the two methods will be discussed. In addition, it describes and examines the difference in the managing of those methods and which form of accounting method is more useful and beneficial to provide information to users for different purposes. In cash basis accounting, revenue is recorded only when the cash is received, and expenses are recorded only when cash is paid. The Generally Accepted Accounting Principles (GAAP) prohibits preparing an income statement using the cash basis of accounting as it violates the matching principles and revenue recognition. An

Revenue – Assets earned by a company’s operations and business activities. Examples would be rental income earned by a property owner or a consulting service (MyAccountingCourse.com,

The income statement generally covers standard categories of revenues and expenses, as well as industry specific categories or sub-categories that hold little utility outside the specific business area. Commonly listed major expenses cover a variety of costs common to nearly all businesses functioning in a country with an established government and rule of law. Costs of goods sold account for the cost of manufacturing or acquiring goods to sell. Selling, general, and administrative expenses cover everything from management costs to staffing compensation to the infrastructure required to move goods to a point where consumers may purchase them. This category also includes expenses such as employee training. Interest expense accounts for any interest payments the business must make to satisfy outside financing arrangements, such as servicing previously issued bonds. Tax burdens make up the last commonly found major expense on the income statement, including national, state, and local taxes.

Preparing different income statements captures information in diverse ways to facilitate decision making on internal matters. The management needs to understand cost behavior in order to control the costs. Besides the production costs, changing sales patterns affects profitability and there is a need to achieve better sales accuracy after understanding cost behavior. Variable costing also captures information about the impact of changing operation on profitability and the management is better placed to make pricing decisions to maximize

Furthermore, the businessman can replace his/her assets through depreciation. After sometime, an asset will be totally exhausted on account of use. A new asset must then be purchased requiring a giant sum of money. If the total amount of earnings is withdrawal from enterprise each year barring considering the loss on account of depreciation, fundamental sum may now not be reachable for shopping for the new asset. In such a case the required cash is to be collected by introducing sparkling capital or through obtaining loan or with the aid of promoting some different assets. This is contrary to sound commerce

Capital allowances are the amount that can be deducted from the income tax for wear and tear of qualifying fixed assets which purchased and used in the business. For instance, the qualification of fixed assets consist of certain types of fixed assets such as carpets, machinery and office equipment, However, in tax purposes, the qualifying of fixed assets is considered as plant and machinery. The expenditure on plant and machinery is any apparatus used in carrying business in the production of income. The apparatus on plant and machinery can be either live or dead, moveable or fixed. However, it must not a stock in trade of the business that acquired for sale purpose. In addition, it also cannot be the business premises or a part of the business premises. (IRAS, 2016; HM Revenue & Customs, 2005a)

In this literature review I will describe and explain the key differences between capital expenditure and revenue expenditure that have been identified by others that have studied the subject previously.

The Following involves the analysis of the costing techniques followed by the company along with its Budgeting system. It also involves the Investment appraisal analysis for the given data.

Fixed Asset charges are difficult to estimate and allocate to a particular product line. Under the old Economic Profit system, many product lines could post losses due to large fixed cost allocations. When losses are associated with a product lines, managers naturally panic. Therefore, we believe that all fixed assets should be evaluated on an Operating Division

(BESSONG, 2012) Study the importance of historical value and fair value cost accounting on reported profit. The study discussed how fair value accounting and historical cost accounting will have effect on the reported profit. However it is said that key objective of any business is to earn profit and it is also equally important to report the profit. Especially it is more important to record profit carefully during inflationary period. However they have study the reported profit and effects of fair and historical value by collecting data from both primary and secondary source. Therefore it is found that historical and fair value both is equally important and both have significant effect on the reported profit. Therefore operating profit of the company is influenced by the amount that is paid for taxes, dividend and depreciation.