Capital vs Revenue Expenditure Concepts

This video tutorial explains the differences between capital and revenue expenditures. Capital expenditure involves acquiring non-current assets with a useful life of over a year, such as buildings and vehicles, and is depreciated over time. Revenue expenditure is incurred for business trade purposes, like maintenance and repairs, and is charged to the profit or loss statement. The video provides guidelines for classifying expenditures and includes practical examples to illustrate these concepts.

What is a key characteristic of capital expenditure?

• It is always related to employee wages.

• It is used for short-term business needs.

• It involves the acquisition of non-current assets.

• It is charged to the statement of profit or loss immediately.

Which of the following is an example of revenue expenditure?

• Installing new software for future use.

• Buying a van for long-term use.

• Repairing a broken machine.

• Purchasing a new office building.

What should be considered when classifying an expense as capital or revenue?

• The number of employees using the asset.

• The color of the asset.

• The duration the asset will be used in the business.

• The brand of the asset.

In the company car example, why is the purchase of new headlights considered a capital expense?

• Because they improve the asset.

• Because they are used for less than a year.

• Because they are a repair cost.

• Because they are a running cost.

Why is diesel considered a revenue expense in the company car example?

• It is a general running cost.

• It is used for more than a year.

• It is a one-time purchase.

• It improves the car's performance.

What is the classification of employee wages in terms of expenditure?

• Neither

• Both

• Revenue expense

• Capital expense

Why is the purchase of a building considered a capital expense?

• It is a repair cost.

• It is expected to last longer than a year.

• It is a short-term investment.

• It is expected to last less than a year.

What is the classification of goods purchased for resale?

• Capital expense

• Revenue expense

• Both

• Neither

When is an expense classified as a capital expense?

• When it is a repair cost.

• When it involves improvement of an asset.

• When it is used for less than a year.

• When it is a general running cost.

What is the classification of selling machinery initially intended for business use?

• Capital expense

• Revenue expense

• Both

• Neither