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Chapter 6

Capital and revenue expenditure

An entity’s expenditure may be classified as one of two types:

 capital expenditure – expenditure likely to increase the future earning capability
of the entity, or

 revenue expenditure – expenditure associated with maintaining the entity’s
present earning capability.

Capital expenditure Revenue expenditure

 Expenditure on the  Expenditure on current
acquisition of non-current assets i.e. inventory
assets acquired for use
 Expenditure relevant to
in the business, not for the running of the
resale. business (such as

 Expenditure on existing administration costs).

non-current assets aimed  Expenditure on
at increasing their maintaining the earning
earning capacity.
capacity of non-current
 Long-term in nature as assets e.g. repairs and
the business intends to renewals.
receive the benefits of
 Relates to the current
the expenditure over a accounting period and is
long period of time. used to generate

revenue in the business.

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