Question

Distinguish between capital and revenue expenditure and state whether the following statements are items of capital or revenue expenditure:

1. Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable.
2. Expenditure incurred to provide one more exit in a cinema hall in compliance with a government order.
3. Registration fees paid at the time of purchase of a building.
4. Expenditure incurred in the maintenance of a tea garden which will produce tea after four years.
5. Depreciation charged on a plant.
6. The expenditure incurred in erecting a platform on which a machine will be fixed.
7. Advertising expenditure, the benefits of which will last for four years. 

Distinguish between Revenue Expenditure and Capital Expenditure of a government, with suitable example. 

Answer 1

S. No.	Basis of Difference	Capital Expenditure	Revenue Expenditure
1.	Meaning	It is incurred to increase the earning capacity of a business.	It is incurred to maintain the earning capacity of a business
2.	Purpose	It is incurred to acquire fixed assets to carry out operations.	It is incurred to conduct day-to-day activities.
3.	Benefits	The benefits of such expenditures can be availed of for more than one year.	The benefits of such expenditures can only be availed for one year.
4.	Nature	It is non-recurring by nature.	It is generally recurring in nature.
5.	Shown	Capital expenditure is shown on the assets side of the balance sheet.	Revenue expenditure is shown on the debit side of the trading and profit and loss account.
6.	Reduction of liability	Do not reduce any corresponding liabilities to the government.	It creates corresponding liabilities for the government.
7.	Increase in Assets	Revenue expenditures do not cause any increase in assets.	Capital expenditure causes an increase in government assets.
8.	Example	Salaries paid to government employees, expenditure on tax collection, etc.	Loans are given by the government, infrastructure is built, etc.

1. Capital expenditure
2. Revenue expenditure
3. Capital expenditure
4. Capital expenditure
5. Revenue expenditure
6. Capital expenditure
7. Deferred revenue expenditure