MCQ - Capital and Revenue Expenditures and Receipts CA Foundation Notes | EduRev

Fundamentals of Accounting for CA CPT

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CA Foundation : MCQ - Capital and Revenue Expenditures and Receipts CA Foundation Notes | EduRev

 Page 1


Capital expenditure  
Vs  
Revenue expenditure 
CA CPT Course Paper 1 Fundamentals of Accounting Chapter 2 Unit 6 
 
CA. K. Shanmuganathan , FCA,ACMA 
 
Page 2


Capital expenditure  
Vs  
Revenue expenditure 
CA CPT Course Paper 1 Fundamentals of Accounting Chapter 2 Unit 6 
 
CA. K. Shanmuganathan , FCA,ACMA 
 
Learning Objectives 
Understand  the criteria for identifying Revenue Expenditure 
and distinguishing from Capital Expenditure. 
Learn the distinction between capital and revenue 
receipts. 
Familiarise with the term Deferred Revenue Expenditure 
and the accounting treatment. 
Understand the linkage of distinction between capital and 
revenue with the preparation of final accounts. 
2 
Page 3


Capital expenditure  
Vs  
Revenue expenditure 
CA CPT Course Paper 1 Fundamentals of Accounting Chapter 2 Unit 6 
 
CA. K. Shanmuganathan , FCA,ACMA 
 
Learning Objectives 
Understand  the criteria for identifying Revenue Expenditure 
and distinguishing from Capital Expenditure. 
Learn the distinction between capital and revenue 
receipts. 
Familiarise with the term Deferred Revenue Expenditure 
and the accounting treatment. 
Understand the linkage of distinction between capital and 
revenue with the preparation of final accounts. 
2 
Introduction 
3 
For ascertaining the periodical business results, the nature of 
transactions should be analysed whether they are of capital or 
revenue nature. 
The Revenue Expense relates to the operations of the business 
of an accounting period or to the revenue earned during the 
period or the items of expenditure, benefits of which do not 
extend beyond that period. 
Capital Expenditure generates enduring benefits and helps in 
revenue generation over more than one accounting period. 
Page 4


Capital expenditure  
Vs  
Revenue expenditure 
CA CPT Course Paper 1 Fundamentals of Accounting Chapter 2 Unit 6 
 
CA. K. Shanmuganathan , FCA,ACMA 
 
Learning Objectives 
Understand  the criteria for identifying Revenue Expenditure 
and distinguishing from Capital Expenditure. 
Learn the distinction between capital and revenue 
receipts. 
Familiarise with the term Deferred Revenue Expenditure 
and the accounting treatment. 
Understand the linkage of distinction between capital and 
revenue with the preparation of final accounts. 
2 
Introduction 
3 
For ascertaining the periodical business results, the nature of 
transactions should be analysed whether they are of capital or 
revenue nature. 
The Revenue Expense relates to the operations of the business 
of an accounting period or to the revenue earned during the 
period or the items of expenditure, benefits of which do not 
extend beyond that period. 
Capital Expenditure generates enduring benefits and helps in 
revenue generation over more than one accounting period. 
Revenue Expenditure 
4 
Revenue Expenses must be associated with a physical activity of the entity.  
Therefore, whereas production and sales generate revenue in the earning 
process, use of goods and services in support of those functions causes 
expenses to occur.  
Revenue expenditure are recognised in the Profit & Loss Account through 
matching principle which tells us when and how much of the expenses to be 
charged against revenue  
A part of the expenditure can be capitalised only when these can be traced 
directly to definable streams of future benefits.  
Page 5


Capital expenditure  
Vs  
Revenue expenditure 
CA CPT Course Paper 1 Fundamentals of Accounting Chapter 2 Unit 6 
 
CA. K. Shanmuganathan , FCA,ACMA 
 
Learning Objectives 
Understand  the criteria for identifying Revenue Expenditure 
and distinguishing from Capital Expenditure. 
Learn the distinction between capital and revenue 
receipts. 
Familiarise with the term Deferred Revenue Expenditure 
and the accounting treatment. 
Understand the linkage of distinction between capital and 
revenue with the preparation of final accounts. 
2 
Introduction 
3 
For ascertaining the periodical business results, the nature of 
transactions should be analysed whether they are of capital or 
revenue nature. 
The Revenue Expense relates to the operations of the business 
of an accounting period or to the revenue earned during the 
period or the items of expenditure, benefits of which do not 
extend beyond that period. 
Capital Expenditure generates enduring benefits and helps in 
revenue generation over more than one accounting period. 
Revenue Expenditure 
4 
Revenue Expenses must be associated with a physical activity of the entity.  
Therefore, whereas production and sales generate revenue in the earning 
process, use of goods and services in support of those functions causes 
expenses to occur.  
Revenue expenditure are recognised in the Profit & Loss Account through 
matching principle which tells us when and how much of the expenses to be 
charged against revenue  
A part of the expenditure can be capitalised only when these can be traced 
directly to definable streams of future benefits.  
Some examples for revenue exp 
5 
? Question: Rs. 1,000 paid for removal of Inventory to a 
new site.  
? Answer: Rs. 1,000 paid for removal of Inventory to a new 
site is revenue expenditure. This is neither bringing 
enduring benefit nor enhancing the value of the asset.  
? Question: Amount spent for replacement of worn out part 
of machine  
? Answer: Amount spent for replacement of any worn out 
part of a machine is revenue expense since it is part of its 
maintenance cost.  
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