Can You E Describe Capitalised Expenditure?


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Sajid Majeed answered
Some expenditures although of revenue nature basically, are directly connected with fixed assets and spent directly on the acquisition of fixed assets and spent directly on the acquisition of fixed assets. Such expenditures are added to the cost of assets and are called "Capitalised Expenditures". For example, we buy a second-hand plant for Rs. 50,000. This is undoubtedly a capital expenditure. A further sum of Rs. 5,000 is spent on its repair and overhauling in order to bring the plant into proper working order.

Expenditure on account of repair and overhauling, although revenue by nature will be treated as Capital Expenditure in this case and will be debited to plant account not to Repairs A/c. Thus, a revenue expenditure which increases the utility or productive capacity of an asset is treated as capitalized expenditure. Below are a few examples of such expenditure.

Expenditure on installing an asset and expenditure on repair to property.
Expenditure incidental to purchase of fixed assets, e.g. freight, clearing charges, customs duty, Carriage, import duty on assets purchased.Cost of repair to second-hand assets: Repair is revenue expenditure. But the cost of repair after buying a second-hand asset to bring them into proper working condition is treated as Capitalised Expenditure.

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