Capital or revenue expenditure
Is it an asset or a running cost? Learn the test, what goes into the cost of an asset, and why the answer changes profit.
Task 1Two kinds of spending3 questions
Skelwith Roasters roasts and sells coffee beans. Its spending falls into two kinds.
- Capital expenditure
- buying a non-current asset, or improving one so that it can do more or last longer. It goes to the statement of financial position
- Revenue expenditure
- the day to day running costs, including repairs and servicing that only keep an asset working. It is an expense in the statement of profit or loss
Ask whether the spending gives the business something new that lasts beyond the year, or simply keeps things going.
Task 2What goes into the cost of an asset4 questions
Task 3Why the difference matters3 questions