Distinguish between capital and revenue expenditure and state whether the following statements are items of capital or revenue expenditure: (a) Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable. (b) Expenditure incurred to provide one more exit in a cinema hall in compliance with a government order. (a) Registration fees paid at the time of purchase of a building (b) Expenditure incurred in the maintenance of a tea garden which will produce tea after four years. (c) Depreciation charged on a plant. (d) The expenditure incurred in erecting a platform on which a machine will be fixed. (e) Advertising expenditure, the benefits of which will last for four years.
Explanation
The answer is derived directly from the distinction points provided in the text, such as earning capacity, purpose, frequency, and benefit period. For the specific items:
- Repairs at purchase (a) and Registration fees (c) are treated as Capital Expenditure because they are necessary to bring the asset into operation (acquisition cost).
- Cinema exit (b) and Machine platform (f) are Capital Expenditure as they represent additions or extensions to fixed assets.
- Tea garden maintenance (d) is Capital Expenditure because the benefit (production) arises in a future period (>1 year).
- Depreciation (e) is explicitly identified in the text as an expense (Revenue Expenditure).
- Advertising (g) is identified in the text as 'Deferred Revenue Expenditure' because it is revenue in nature but benefits extend beyond one year.