Capital Expenditure is the purchase or improvement of Non
Current (Fixed) Assets including delivery and installation costs. It does not include the repair or maintenance
of any non current asset as this is a running cost to be paid each year. The accruals concept says the total cost
should be written off (depreciated) over their expected lifetime. NCA’s are usually kept for more than 12
months and help to generate profits.
Capital Income could be a long term sponsorship deal (e.g.
£50m over 5 years is £10m per year claimed as income. Emirates sponsorship of Arsenal FC’s stadium
could be considered an example.
Worked Example
A driving instructors car cost £11,000 to buy plus £1000 in
extra signage and dual controls. The
capital expenditure would be £12000. It
is expected to be used for 3 years and have residual value of £3000
The yearly depreciation is (£12000 - £3000)/3 = £3000 per
year
Revenue Expenditure is the running costs which belongs to
that year. This is put as an expense in
the years Income Statement (Profit and Loss).
Things like repair to a non current asset (new tyres on the car) or the depreciation
of £3000 are revenue expenditure
Revenue Income is income belonging to that year – e.g. Sales
and Rent Received.
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