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## Capital Expenditure and Revenue Expenditure Revenue expenditure constitutes a charge against profits. It is therefore debited to Trading and Profit and Loss account. On the other hand, capital expenditure is not a charge against profits. It is an asset not meant for resale. It is shown on the as...

## Capital Expenditure and Revenue Expenditure Revenue expenditure constitutes a charge against profits. It is therefore debited to Trading and Profit and Loss account. On the other hand, capital expenditure is not a charge against profits. It is an asset not meant for resale. It is shown on the assets side of the balance sheet. ### What is Capital Expenditure? Capital expenditure is expenditure resulting in: * The acquisition of an asset * An increase in the earning capacity of a business. * An advantage or a benefit of an enduring or permanent nature. The purpose of capital expenditure is to create a new infrastructure/asset with a view to improve future profitability. This is done either a) positively by increasing earning capacity, or b) negatively by some structural changes thereby decreasing working expenditure. It is not absolutely essential that some new asset must come into existence as a result of capital expenditure. If a cinema theatre is renovated to provide for additional seating capacity, then expenditure on such renovation is a capital expenditure because it increases the earning capacity of the business. Similarly, if a petrol engine of a motor car is converted into diesel engine, the expenditure involved would be of capital nature, as it would result in a decrease in working expenditure of the business in future. ### Examples of Capital Expenditure * Expenditure for purchase or acquisition of fixed assets like land, buildings, plant, machinery, furniture, fixtures, goodwill, patent, trade-marks, copyrights, leasehold rights, vehicles, etc. * Expenditure incurred in connection with or incidental to the purchase or installation of a fixed asset e.g., legal charges, stamp duty for the