I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

 

137 

Since revenue items and capital items are accounted for in different ways, the correct and consistent 

calculation of profit for any accounting period depends on the correct and consistent classification of 

items as revenue or capital. 

This may seem rather confusing at the moment, but things will become clearer in the next few chapters. 

You must get used to the terminology used, as these words appear in the accounting standards 

themselves, as we will see. 

QUESTION 

Capital or revenue

 

State whether each of the following items should be classified as 'capital' or 'revenue' expenditure or 

income for the purpose of preparing the statement of profit or loss and the statement of financial 

position of the business. 

A 

The purchase of a property (eg an office building) 

B 

The annual depreciation of such a property 

C 

Solicitors' fees in connection with the purchase of such a property 

D 

The costs of adding extra storage capacity to a computer used by the business 

E 

Computer repairs and maintenance costs 

F 

Profit on the sale of an office building 

G 

Revenue from sales by credit card 

H 

The cost of new plant 

I 

Customs duty charged on the plant when imported into the country 

J 

The 'carriage' costs of transporting the new plant from the supplier's factory to the premises of the 

business purchasing the plant 

K 

The cost of installing the new plant in the premises of the business 

L 

The wages of the machine operators 

ANSWER 

A Capital 

expenditure 

B 

Depreciation of a non-current asset is revenue expenditure 

C 

The legal fees associated with the purchase of a property may be added to the purchase price 

and classified as capital expenditure. The cost of the property in the statement of financial 

position of the business will then include the legal fees 

D 

Capital expenditure (enhancing an existing non-current asset) 

E Revenue 

expenditure 

F 

Capital income (net of the costs of sale) 

G Revenue 

income 

H Capital 

expenditure 

I 

If customs duties are borne by the purchaser of the non-current asset, they may be added to the 

cost of the machinery and classified as capital expenditure 

J 

Similarly, if carriage costs are paid for by the purchaser of the non-current asset, they may be 

included in the cost of the non-current asset and classified as capital expenditure 

K 

Installation costs of a non-current asset are also added to the non-current asset's cost and 

classified as capital expenditure 

L 

Revenue expenditure  

 

 

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