Capital and Revenue Expenditure

• Non Current Assets -> Resouces that a business owns or controls that are expected to provide future benefits beyond one financial year
• There are two types of expenditure

  1. Capital expenditure
  2. Revenue expenditure
• Definition of Capital Expenditure

  • Cost to buy non-current assets and bring them to their intended use
  • Cost to enhance the non-current assets
  • Provides benefit that last for more than a year
• Defination of Revenue expenditure

  • Cost to operate, repair and maintain non-current assets in working condition
  • Provides benefit which will be used up within a year
• Defination of Materiality Theory: A transaction is considered material if it makes a difference in the decision-making process
• Error in classification for Capital Expenditure

  1. Effect on Expense -> Overstated
  2. Effect on Profit -> Understated
  3. Effect on Non-current Assest -> Understated
• Error in classification for Revenue Expenditure

  1. Effect on Expense -> Understated
  2. Effect on Profit -> Overstated
  3. Effect on Non-current Assest -> Overstated