In the present case, the initial purchase cost of the machinery, along with the installation costs will be classified by the business as the capital expenditure because the benefit of the machinery will be derived by the business for the. Example of Revenue Expenditure. (iii) Revenue Expenditure (iv) Revenue Expenditure (v) Capital Expenditure Q.2 State with reasons whether the following are Capital or Revenue Expenses: (i) Excise duty paid on purchase of new machine. Examples are salaries and wages, fuel used to drive machinery, electricity used to … more Capitalization: The Whys and Hows Revenue expenditure is the running expenses of the company ; Raw materials, Salary and allowances, wages payments, printing and stationery, repair of fixed assets are the common example of revenue expenses. These include purchase of merchandize goods and expenses paid by business such as wages, rent, salary etc. Payments made to the related parties should commensurate with the actual services performed by them (reasonable as compared to an independent employee with the same qualification and experience performing the same services). I. EXPLANATORY NOTES Abstract 'N' Suspense is intended for the temporary booking of certain classes of transactions pending adjustment to final heads of account and to record the expenditure in the accounts of a month to which it relates irrespective of whether the same has actually been liquidated. For that purpose, it buys a machine so that the bakery items can be produced. Development expenses in case of mines and plantations. Following are the important Items of revenue expenditure: Even as a non accounting person, able to easily understand the concept, thanks for your help, and your good insight. (iii) Repairs carried out on existing car. This article has been a guide to Revenue Expenditure and its meaning. For example, the salary paid to the truck driver is considered as revenue expenditure. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. Solution 6: Purchase of machinery. Whereas the initial purchase and installation costs would be classified as capital expenditure, any subsequent repair and maintenance charges incurred in the future will be classified as revenue expenditure. Which of these is NOT a list of revenue expenditure? For example, the cost of the repairs of machinery is a revenue expenditure. Terms in this set (11) Sales tax paid on the purchase price. It is not sure about which expenditure to be treated as revenue expenditure. For Example: Huge Advertisement Expenditure. Transportation and insurance while machinery is in transit from seller to buyer. answer choices . Ordinary Recurring Repairs To Keep The Machinery In Good Working Order. The direct expense is expense occur from the production of raw material to final goods and service. Installation of an air conditioning system. Wages − If paid to build up assets or for erection and installation of Plant and Machinery. These expenses are neither incurred to acquire capital assets nor the benefits of such expenditure is received in the same accounting period during which they were paid. Capital & Revenue Expenditure . it's generally considered revenue HOWEVER there is an argument to say that the first time you tax it, it could be considered capital expenditure as it's part of the cost of getting it on the road (kind of like an installation fee for machinery/ equipment) but then the subsequent times you tax it in the following years/months would definitely be considered revenue Office air conditioning system. Examples are salaries and wages, fuel used to drive machinery, electricity used to light the factory or offices, etc. Any expenditure which is incurred for raising capital money for business, such as commission and brokerage paid to agent for arranging long term loans, discount on issue of shares and debentures. A. (iii) Installation costs of new production machine should be treated as a Capital Expenditure because it will benefit the business for more than one accounting period. Then we paid wages $1,000 for its installation in the factory. 2. Carriage and Freight: These are also revenue expenditures but Carriage and Freight paid for bringing the machine to the godown, then it is treated as Capital expenditure. Payment of wages is classified as a normal running cost of a business, so is stated under revenue expenditure. Generally, wages are revenue expenses but wages paid to employees engaged in the construction or installation of the fixed assets of the business are capital expenditures. Generally, such expenditures will be divided into two categories, i.e., expenses on maintenance of revenue-generating assets and the expenses on things used for generating the revenue of the business. Wages paid in the month of April for installation of plant and machinery … Purchase of Furniture Repairs to Machinery Extension of Office Installation of Equipment. An item of expenditure whose benefit expires within the year is revenue expenditure. Examples of Revenue expenditures: Following are the important Items of revenue expenditure: Comparison Between Different Cost Flow Assumptions, Application of different Cost Flow Assumptions, How to Determine the Cost of Ending Inventory, Time series analysis and seasonal variations, Introduction to cost accounting – MCQs quiz, Cost Concept, Analysis and Classifications MCQs, Expenditure incurred on the acquisition of fixed. (iii) ₹ 5,000 paid for the erection of a new machine. Stationery, supplies, merchandise. The direct expense example is wages of labor, shipping cost, power, and electricity bill cost, rent, commission, legal expense, etc. (ii) A sum of ₹ 10,000 was spent on painting the new factory. Consider a company XYZ Ltd manufacturing and selling the packets of the pen. When you make or sell a product or offer a service, the proceeds you receive from product sales or services are called revenue or income. are treated as CAPITAL EXPENDITURE and debited to … Transaction Type (i) The purchase of machinery for use in the business. The owner of the company is arguing that it should be treated as revenue Expenditure. Office air conditioning system. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy. It is charged at the expense in the statement of income as soon as the cost is incurred as by this business is using the accounting principle of matching for linking the expense incurred with the revenues generated in the same reporting period. Additionally, expenses incurred to acquire any of the assets or improve the capacity or life of the assets will be treated as the. EXAMPLE. HARD. 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