Capital expenditures are fixed assets like Plant, machinery, equipments etc. Revenue expenditures are short-term expenses which are used in the current period or within one year. Capital expenditures are a larger amount than the revenue expenditures.
So,it is necessary to distinguish between revenue and capital for presentation of true and fair position of the business.
Factors to be considered while distinguishing items into capital and revenue:
–Nature of business:
Nature of business like Furniture is capital expenditure for any other business but it is a revenue expenditure of Hansa Palace ( a furniture seller)
-Object of Expenditure:
Expenditure which incurred on normal repairs of building on machine is revenue but if it is for increasing the earning capacity of the assets it will be capital expenditure.
-Effect Income generation:
Expenditure which to generate income in accounting year only is revenue expenditure an expenditure which generate income more than one year is capital expenditure.
– Nehal Sharma