Account 3 Marks Question

Basis of
Difference

Capital Expenditure

Revenue Expenditure

(i) Timings

It is charged as expense gradually via
depreciation over a long period of time.

It is charged to expense in the
current period, or shortly
thereafter.

(ii) Consumption

It is assumed to be consumed over the
Consumption useful life of the related fixed asset.

It is assumed to be consumed
within a very short period of
time. (i.e one year)

(iii) Size

It tends to involve larger monetary amounts than revenue expenditures. This is because expenditure is only classified as a capital expenditure if it exceeds a certain threshold value; if not, it is automatically designated as revenue expenditure.

Quite large expenditures can still be classified as revenue expenditures, as long they are directly associated with sale

(iv) Nature

This is of Capital nature hence shown on Assets sides of balance sheet.

This is of Revenue nature hence shown as Expenditure in P&L A/c.

Journal Entries

Date

Particular

L.F

Amount Dr. (Rs)

Amount Cr. (Rs)

(i)

Loss by Fire Account

Dr.

4,500

To Purchase Account

4,500

(Being goods destroyed by fire)

(ii)

To cash Account

Dr.

1,500

(Being wages paid for installation Machinery)

1,500

Purchase Account

(iii)

Purchase Account

Dr.

7,500

To Bank Account

7,500

(Being goods purchased by cheque)

(iv)

M/s Kalu Sons

Dr.

6,270

To Sales Account

6,270

(Being goods sold costing Rs 6,000 at on invoice above cost less 5% trade discount)