Question

Differentiate between the Capital and Revenue Expenditure on the basis of purpose, earning capacity and placement in financial statements.

Answer 1

| BASIS | CAPITAL EXPENDITURE | REVENUE EXPENDITURE |
| Purpose | It is incurred for acquiring of fixed assets | It is incurred for maintenance of fixed assets. |
| Earning Capacity | It increases the earning capacity of the business. | It helps in maintaining the earning capacity of the business intact. |
| Placement | It is an item of Balance Sheet and is shown as an item of asset. | It is an item of Trading and Profit and Loss Account and is shown on the debit side of either of the two. |