Items of revenue expenditures becoming capital expenditures
The following are the important examples of which are usually revenue, but under certain circumstances they become capital expenditure:-
Generally legal charges are revenue expenses, but legal charges paid in connection with
the purchase of property or other fixed asset such as land, building, furniture, machinery and
patents etc., are capital expenditure, as they increase the further cost of the asset purchased.
Generally, wages are revenue expenses but wages paid to employees engaged in the construction or installation of the fixed assets of the business are capital expenditures. For instance if a construction company decides to enlarge its own building, the company’s own workers are employed in making extension to the building, the wages paid for this purpose would be capitalized.
Repairs and renewals are usually treated as items’of revenue charge, but if an old asset is purchased the amount spent on its immediate repair by the purchaser to put it in working order is capital expenditure.
Freight and carriage
This is revenue charge, but freight or carriage paid on a newly purchased fixed asset is
Brokerage and stamp duty
Generally, this is a revenue expenditure, but the brokerage and stamp duty paid on the purchase of property is capital expenditure.
Raw material and stores
Cost of raw materials and.stores is usually treated as a revenue charge, but the cost of any raw materials and store consumed in the making of a fixed asset must be regards as capital expenditure.
Ordinarily, it is revenue expenditure but the interest on a loan taken for the purchase of any fixed asset or on the subscribed capital during the construction period of a new company is a capital expenditure.
Certain concerns such as electric supplies, mining company, tea and rubber plantations, collieries etc., require a very long period of development before they can begin to earn income. All expenditures incurred during that period is called development expenditure and is treated as capital expenditure, although it consists of items such as wages, salaries, rent and taxes.