Ilm Making a Financial Case
- Submitted by: VIXR2016
- Views: 95
- Category: Other
- Date Submitted: 06/29/2016 10:46 AM
- Pages: 10
- Report this Essay
D/501/3289 - Making a Financial Case
Knowledge
1.1 Explain the differences between capital and revenue expenditure using examples
The difference between Capital and revenue expenditure is as follows;
Capital Expenditure
This is money spent on fixed assets or other long term projects such as office equipment, tools and IT equipment, for example Ucan purchased new equipment to create the breaking down area such as air hose and pneumatic guns these we would expect to use for the foreseeable future and as an investment that should generate us an incoming revenue.
Capital expenditure should not be included as an expense in current profit and loss accounts as this would be classed as misleading and violate the idea of the accruals concept, because they cannot be included they appear on the balance sheet and will be capitalised and listed as a fixed asset. Money has been spent on this asset and the bank or cash figure would be reduced, but it initially appears as though the cost of the asset does not appear as an expense. However, the asset does appear as an expense but this is done over time and will appear as depreciation.
Capital expenditure would also include costs involved in getting the asset into working condition. For example, these costs would all be classified as capital expenditure:
1. Delivery costs for asset
2. Installation costs
3. Legal fees involved with the purchase of an asset
Revenue Expenditure
This is money that Ucan spends day-to-day on running costs because the expense can be linked to belonging to a specific period of time. The expense is 'used up' during that period of time and will not be carried forward into the next period of time. Any items of revenue expenditure will appear as an expense in that period's profit and loss account. An example of Ucan’s revenue expenditure is rent, or our Van’s MOT which we pay yearly plus repair costs.
Basically if the expenditure doesn’t add any value to Ucan or have...
Knowledge
1.1 Explain the differences between capital and revenue expenditure using examples
The difference between Capital and revenue expenditure is as follows;
Capital Expenditure
This is money spent on fixed assets or other long term projects such as office equipment, tools and IT equipment, for example Ucan purchased new equipment to create the breaking down area such as air hose and pneumatic guns these we would expect to use for the foreseeable future and as an investment that should generate us an incoming revenue.
Capital expenditure should not be included as an expense in current profit and loss accounts as this would be classed as misleading and violate the idea of the accruals concept, because they cannot be included they appear on the balance sheet and will be capitalised and listed as a fixed asset. Money has been spent on this asset and the bank or cash figure would be reduced, but it initially appears as though the cost of the asset does not appear as an expense. However, the asset does appear as an expense but this is done over time and will appear as depreciation.
Capital expenditure would also include costs involved in getting the asset into working condition. For example, these costs would all be classified as capital expenditure:
1. Delivery costs for asset
2. Installation costs
3. Legal fees involved with the purchase of an asset
Revenue Expenditure
This is money that Ucan spends day-to-day on running costs because the expense can be linked to belonging to a specific period of time. The expense is 'used up' during that period of time and will not be carried forward into the next period of time. Any items of revenue expenditure will appear as an expense in that period's profit and loss account. An example of Ucan’s revenue expenditure is rent, or our Van’s MOT which we pay yearly plus repair costs.
Basically if the expenditure doesn’t add any value to Ucan or have...