Capital And Revenue Expenditure And Receipts Pdf


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capital and revenue expenditure and receipts pdf

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Heavy advertisement expenses to introduce a new product is deferred revenue expenditure : Cost of construction of building including cost of temporary huts for storing building materials is capital expenditure: The cost of Rings and Pistons of an engine changed to increase its fuel efficiency is revenue expenditure Deferred revenue expenditure is a revenue expenditure by nature. Capital and Revenue Expenditure and Receipts. After reading this lesson the reader should be able The income is obtained from various sources and mainly differentiated as Capital Receipts and Revenue Receipts. Classify the following receipts into capital and revenue. Revenue receipts are funds received by a business as a result of its core business activities.

Difference Between Capital Receipt and Revenue Receipt

Income Tax is levied on income of assessee and not an every receipt which he receives. The method of charging tax on different types of receipt is different.

This make the distinction between capital and revenue of vital importance. For this distinguish capital and revenue items can be divided in to 3 sub-parts :. Some tests, however, can be applied in particular cases. These Tests are :. Fixed assets is that with the help of which owner earns profit by keeping it in this possession, e.

Plant , Machinery, Building or factory etc. Circulating Asset is that with help of which owner earns profits by parting with it and letting others to become its owner, e. Stock-in Trade. Profit on the sale of Motor Car used in business by an assessee is Capital Receipt whereas the profit earned by an automobile dealer, dealing in cars, by selling a car is his revenue receipt.

Amount received in substitution of income : Any sum received in substitution of income is revenue receipt, e. It was held that damages received are the compensation for the profits which were to be earned. Hence, this is Revenue Receipt. Compensation received on termination of Lease or surrender of a Right. Any amount received as compensation on surrendering a right or termination of any Lease is Capital Receipt where as any amount received for loss of future income is a revenue receipt.

An Author gives up his right to publish a book and receives Rs. It is capital receipt but if he receives it as advance Royalty for 5 years it is Revenue receipt.

To distinguish a Revenue Expenditure from a Capital Expenditure, the following tests can be applied for this purpose :. An expenditure incurred to discharged a revenue liability is Revenue Expenditure, e. Amount paid to a contractor for cancellation of contract to construct a factory building is capital expenditure.

An Expenditure incurred to earn an income is revenue expenditure , e. Distinguish has to be made between Revenue Losses and Capital Losses of the business because under the provisions of this Act, Capital Losses can be set off against the Income from Capital Gain only, whereas the Revenue Losses are business losses and as such can be set off against any other income of the assessee.

It is very difficult to distinguish between a Capital Loss and a Revenue Loss on the basis of certain principles. On the basis of court judgment, following decisions have become distinguishing points :. State , giving reasons, whether the following are Capital or Revenue Receipts :. Money received by a Tyre Manufacturing company for sale of technical know-how regarding manufacture of tyre.

If the assessee has also converted the bonus shars into stock in trade then it is a revenue receipt otherwise it is an accretion in the capital assets. Revenue Receipt but in case the sale of technical know-how results into substantial reduction in value of the tyre company or company closes down its business in that particular line then the receipt would be a Capital Receipt.

Assessee gets the income of dividend and interest regularly and form a define source and it is a return for the use of his asset by somebody else and so it is a revenue receipt.

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The visitors may click here to visit the web site of Income Tax Department for resolving their doubts or for clarifications. Example : State , giving reasons, whether the following are Capital or Revenue Receipts : Compensation received for compulsory vacation of place of business. Bonus shares received by a dealer of shares. Dividend and interest for investment. Tax Ready Reckoner for the A. Topics Taxation System. Basic Concepts on Tax Systems in India. Basis of Charge Residential Status.

Exempted Incomes : www. Taxation Systems in India.

Capital and Revenue Expenditure and Receipts

Section B: There are four 4 questions. Questions 10 Publications 6, Expenditure interview questions and answers on topics like types of expenditures in accounting, capital expenditures, Revenue Expenditure, effect on profitability statement, Deferred expenditures etc. Revenue expenses are short-term expenses to meet the ongoing operational costs of running a … This is the basis of classification between revenue expenditure and capital expenditure. Indicate which of the following is capital expenditure or revenue expenditure. Capital expenditures are major investments of capital to expand a company's business.

Business receipts are inflow of economic resources mostly in the form of cash and cash equivalents. In accounting and finance, they can be divided into two types — capital receipts and revenue receipts. A brief explanation of both the types is given below:. Capital receipts are business receipts which are not related to the day to day business activities of a company. They occur occasionally and provide benefit for a long period of time. Capital receipts are normally presented in the balance sheet of a company when realized and generally occur as a result of the following events:. QRS allocated shares to all the existing members of the company proportionately and in return received cash.

In general, two types of receipts occur during the course of business. Capital Receipts are described as the money brought to the business from non-operating sources like proceeds from the sale of long-term assets, capital brought by the proprietor, sum received as a loan or from debenture holders etc. Capital receipts differ from revenue receipts, in the sense that the former has no bearing on profit or loss for the financial year, whereas the latter is set off against the revenue expenses for the period. Read the article provided to you, so as to understand the difference between capital receipt and revenue receipt. Basis for Comparison Capital Receipt Revenue Receipt Meaning Capital Receipts are the income generated from investment and financing activities of the business. Revenue Receipts are the income generated from the operating activities of the business. Increases or decreases the value of asset or liability.

Capital vs Revenue

Back to: Capital and revenue items quizzes Show your love for us by sharing our contents. Capital expenditure is defined in the Local Government Act as expenditure which, in accordance with proper accounting practices, falls to be capitalised. It is deferred revenue expenditure as the benefit will be derived over a … Recommended Articles. Normally, revenue expenditures are incurred for receiving or earning of income. Revenue expenses are short-term expenses to meet the ongoing operational costs of running a business.

Income Tax is levied on income of assessee and not an every receipt which he receives. The method of charging tax on different types of receipt is different. This make the distinction between capital and revenue of vital importance.

He knows that it is important to distinguish between capital expenditure and revenue expenditure. Deferred Revenue Expenditure is revenue expenditure, incurred to receive benefits over a number of years say 3 or 5 years. Multiple choice questions MCQs Chhavi sharma. Tamilnadu Samacheer Kalvi 11th Accountancy Solutions Chapter 11 Capital and Revenue … Capital expenditure results in the appearance of a non-current asset in the statement of financial position of the business.

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Capital and Revenue Expenditure

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Capital expenditure, therefore, can be defmed as: expenditure on the purchase of fixed assets, or expenditure to increase the value of an existing fixed asset.

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