04-14-2007, 08:53 AM
I saw lot about this topic so i try to cover all regarding here in this post
CAPITAL EXPENDITURE is an expenditure done in course of improvements of ASSETS
REVENUE EXPENDITURE is an expenditure which is incurred in course of restoration to current capacity(that is in which it was previously[before damage done to it] held)
Examples-
1)Their is a new plain plot of 1080sq.ft(120sq.yds) bought in 1 January 2001 and you incurred an expense of $20,000 on construction of 5 rooms in it named as ROOM (A,B,C,D,E).It is something called capital expenditure.But in August 2005 a heavy rain destroyed 1 room say room B out of those 5(A,B,C,D,E) rooms but 4(A,C,D,E) of them were not destroyed now you made an attempt to re-build the room(B) and the construction of it was completed in September 2005 by incurring an expense of $6750 this is something called revenue expenditure.Because you restored it in its previous available condition.
2)Consider another example with reference to EXAMPLE#1 that the destroyed room B was so large(say for example 300sq.ft) room in whole plot of(1080sq.ft) now you made an attempt to re-build it and you planned to made a room and a small extra store in 300sqft.So in September you incurred an expense of $6750($5000 for roomB(re-build) and $1750 to build an extra store) now in this case $5000 is revenue expenditure but $1750 is Capital expenditure.Because $1750 expense was incurred on improvement above the previously available condition.
3)Another example that due to short circuit in electric wires your whole wireing is lost and destroyed you hire an electric technician and restore it in its running condition this is something called revenue expenditure.But if with restoration to the destroyed wiring you also attempted to install some alarams which in dangerous situations starts noising then those of the expenditure incurred on alarams is capital expenditure because it is an improvement.
4)You bought 2 Machines; Machine A and Machine B; Machine A was in running condition when buying but Machine B was not in running condition.You incurred an expense of $400 on machine B to make it runs now this $400 expense is something called Capital Expenditure because you made improvements in it.But after 20 days of work machine A was also burned and you incurred $260 to re-build it now these $260 are revenue expenditure.
Always remember that DECORATION AND REDECORATION are always REVENUE Expenditure
Regards
Muhammad Amir
