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Question
Distinguish between capital expenditure and revenue expenditure.
Solution
| Basis | Capital expenditure | Revenue expenditure |
| 1. Nature | It is non-recurring in nature | It is recurring in nature. |
| 2. Purpose | To contribute to the revenue earning capacity of the business. | To carry on the day to day activities of the business. |
| 3. Period of benefits | Its benefit is available for a longer period. | Its benefit is obtained within one accounting period. |
| 4. Effect on profit-earning capacity | It increases the profit-earning capacity of the business. | It maintains the profit-earning capacity of the business. |
| 5. Accounting treatment | It will appear on the assets side of the balance sheet. | It will be shown on the debit side of the trading and profit and loss account depending on whether direct or indirect in nature. |
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