2.11 Capital Expenditure and Revenue Expenditure 2.11.1 Capital Expenditure Capital expenditure includes the following
A. Expenditure incurred for acquiring assets that are intended to be used for the purpose of
producing or providing foods or services rather than for the purpose of sale in the
ordinary course of business. Thus, all costs of acquiring fixed assets and bringing them
to their working condition for their intended use will form part of capital expenditure.
For example, in the case of an item of machinery, besides the price paid for acquiring it,
costs incurred for making it ready for use, such as initial delivery and handling cost,
installation cost and cost of trial runs, will also form part of capital expenditure.
B. Subsequent expenditure on fixed assets, which increases the future benefits arising from
them beyond their previously assessed standard of performance. Thus, the expenditure on
fixed assets subsequent to their acquisition, which increase their capacity, efficiency, life
span or economy of operations, is capital expenditure. If expenditures incurred merely to
maintain an asset in working order at its existing standard of performance, it is a revenue
expenditure on repairs and maintenance (Barth and Beaver: 1998; 246).
2.11.2 Revenue Expenditure This refers to the expenditure incurred on carrying on operations during an accounting
period, the benefits of which do not extend beyond that period. As per the matching
principle, such expenditure is changed against the revenue earned during the relevant period,
examples of items of revenue expenditure are raw materials consumed, salaries and wages of
the administrative staff, repairs and maintenance, legal expenses, losses due to fire, etc (Barth
and Beaver: 1998; 279).
13
