HIMACHAL PRADESH NATIONAL LAW UNIVERSITY

DISCIPLINE – FINANCIAL ACCOUNTING

TOPIC – CAPTAL AND REVENUE EXPENDITURE AND CAPITAL

AND CAPITAL AND REVENUE RECEIPTS

SUBMITTED TO: -

DIGVIJAY KATOCH SIR

SUBMITTED BY: -

YASHASVI SHARMA

BBA LLB (HONS.) (SEM 1ST)

ENROLLMENT NO.: - 1120202148

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INDEX

S.NO TOPIC PAGE NO.

1. Introduction 1

2. Distinction between 1-2

revenue and capital

3. Define- 2-6

• Capital
expenditure
1. Illustrations
2. examples
• Revenue
expenditure
1.plan
expenditure
2.non-plan
expenditure

4. Define- 6-18

• What are
receipts?
• Revenue receipt
1. Illustrations
2. examples
3. Tax
revenue

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 4. Non-tax
revenue
• Capital receipt
1. Illustrations
2. examples

5. Differentiate between- 18-20

1. Capital
expenditure and
revenue
expenditure
2. Revenue receipts
and capital
receipts

6 Case study 20-22

7 conclusion 23

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ACKNOWLEDGEMENT

I Yashasvi Sharma wish to express my sincere gratitude to

Digvijay Katoch sir for his guidance and support in this project

and for giving me an opportunity to work on the topic vicarious

liability, his insight and valuable assistance has been of

immense help. I also appreciate the given e-resources provided

by university, these resources were of immense value and help

for research and information regarding the project. This project

is a success just because of the assistance and efforts provided

by them

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INTRODUCTION

Origin of receipts and expenditure importance sources from government budget.

As in the end it helps to analyse the performance of the government and its
economic policies, they are a significant part of it as receipts tells us the all the
money that comes in as income and expenditure tells us all the money that goes
out as costs.

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DIFFERNECE BETWEEN CAPITAL AND REVENUE

You realize that keeping a nitty gritty and deliberate record of business exchanges
is two-overlap i.e.,

(i) to certain the net aftereffect of the exchanging movement for a

bookkeeping year, and
(ii) to discover the monetary situation of the business as toward the
finish of the bookkeeping year.

According to rules, things of income nature are appeared in the Profit and Loss
Account and things of capital nature yet to be determined Sheet. At the end of
the day, regardless of whether a thing will show up in Profit and Loss Account
or yet to be determined Sheet relies on the income and capital nature of the
thing. On the off chance that anything is wrongly ordered i.e., if anything of
income nature is treated as a capital thing or the other way around, the
ascertainment of benefit will be mistaken. For instance, the incomes procured
during a bookkeeping year are Rs. 2,00,000 and the expenses indicated are Rs.1,
80,000. The benefit will work out as Rs. 20,000. On reviewing you found that an
income thing of Rs. 5,000 (a use on fixes of hardware) had been treated as a
capital thing (added to cost of apparatus) and consequently excluded. It implies
the genuine expenses are Rs.1,85,000 and not 1,80,000. Thus, the right benefit is
Rs. 15,000. At the end of the day, the benefit worked out before was exaggerated.
In this manner, it can likewise be expressed

CAPITAL EXPENDITURE

The expenditure incurred for or deed a set plus or which ends in increasing the
earning capability of the business is thought as cost. the advantages of it square
measure availed in many accounting years Some examples are: -

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1.) expenditure incurred for the acquisition of a fixed asset e.g., building,
furniture, machinery etc.

2.) expenditure incurred for the inward carriage or erection of a facet e.g.,
carriage paid with reference to the acquisition asset. Wages paid to labourers in
reference with installation of the machinery. These expenses type a part of the
cost of the fixed asset.

3.) expenditure incurred for extension or improvement of an existing fixed asset

e.g., cash spent in reference to increasing the commodiousness of a cinema hall
or constructing a further area.

4.) expenditure incurred on major repairs of an old set pluse.g., repairs for
reconditioning a machinery.

5.) expenditure incurred for the replacement of an old asset with a new set plus
e.g., replacing a hand-driven machine by an automatic one.

.1 Any expenditure which ends within the acquisition of mounted assets like
land, buildings, plant and machinery, piece of furniture and fixtures,
workplace instrumentality, copyright, etc. you must note that such cost includes
not solely the acquisition worth of the mounted plus however conjointly
numerous different expenses incurred in reference to their acquisition. So,
brokerage or commission paid in reference to the acquisition of a set plus (asset),
freight and carting acquired transportation of machinery, expenses incurred on its
installation, legal fees and registration charges incurred in reference to purchase
of land and buildings also are treated as cost.

2 Any expenditure incurred on a fixed asset which results in

(a) its growth,

(b) substantial increase in its life

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(c) improvement in its revenue earning capability Improvement in the revenue
earning capability will be within the sort of

(i) increased production capability, or

(ii) reduced expense of production, or

(ii)enlarged sales in the firm.

. Thus, value of constructing additions to buildings and also the quantity spent on
renovation of the previous machinery also are considered capita1 expenditures.
Sometimes, you purchase a used machinery and incur serious expenditure on
reconditioning it. Such expenditure is additionally to be capitalised. Similarly,
expenditure on structural enhancements or alterations to existing mounted assets
whereby their revenue earning capability is hyperbolic, is additionally treated as
cost (capital expenditure).

3 Expenditure incurred, throughout the first years, on development of mines

and land for plantations until they become operational.

4 value of experiments that ultimately lead to the acquisition of a patent.

However, the value of experiments that aren't thriving is treated as a postponed
revenue expenditure that is written off among 2 to 3 years.

5 Legal charges incurred in reference to deed or defensive suits for

safeguarding mounted assets, rights, etc.

Capital Expenditure: It consists of expenditure, the good thing about that isn't
absolutely consumed within the accounting amount however meet many periods.
Any expenditure, that is undertaken for the aim of accelerating profit either by
approach of accelerating jewellery capability or by decreasing prices, is cost. cost
is one that increase in amount of mounted assets, increase in quality of mounted
assets, Replacement of mounted assets. An expenditure cannot be aforesaid to be

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a cost solely as a result of 1] the number is giant 2] the quantity paid in lump-sum
3] the receiver of amount goes to treat it for purchase of mounted plus(asset).

REVENUE EXPENDITURE

A use caused throughout normal business at the purpose once the advantage of
use is not likely to be accessible for over one year, it's treated as financial revenue
expenditure. Hence, all costs which are brought about during the customary
course of business are viewed as income uses. These might be as per the
following:

1 Expenses caused in everyday direct of the business, for example,

compensation, pay rates, lease, postage, writing material, protection, power,
and so forth

2 Expenditure caused for buying product for merchandising or crude materials

for aggregation.

3 Expenditure caused for maintaining the fastened resources, for instance,

fixes and restorations of building, apparatus, so forth.

4 Depreciation on fastened(fixed) resources. this could likewise be named as

financial gain misfortune.

5 Interest on credits obtained for maintaining the business any interest on

advance paid throughout the underlying time-frame before creation initiates,
is not treated as financial gain use. it's treated as cost or capital expenditure.

6 Legal charges caused throughout the customary course of business, for

instance, legitimate prices caused on assortment from account holders, lawful
charges caused on guarding a suit for harms.

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PLAN EXPENDITURE - this alludes to assessed use gave in the spending plan
to going through during the year on routine working of the public authority as
indicated by the objectives set by the public authority.

NON-PLAN EXPENDITURE-all the assessed use other than the arranged use
is called non-plan use

WHAT ARE RECEIPTS? A receipt could be a piece of paper or electronic

document confirming that the vendor received cash from the buyer. The receipt
generally includes the date and an outline of the item the buyer bought. It
conjointly includes an outline of the item the customer purchased. When the
dealings are between 2 businesses, receipts contain data regarding the tactic of
payment and also the emptor. It is associate acknowledgment from the seller to
the customer that the seller has received payment for a decent or service. during
this context, the word ‘good’ suggests that “product” As a verb, it suggests that
to mark one thing as paid, as in “here is that the receipted invoice”

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CAPITAL AND REVENUE RECEIPTS

Receipts allude to sums got by a business i.e., money inflows. Receipts might be
delegated Capital Receipts and Revenue Receipts. It is important to take note of
this differentiation obviously on the grounds that lone the income receipts are
taken to the Profit and Loss Account and not the capital receipts.

Capital Receipts-

What are Capital Receipts?

Capital receipts are those receipts which either make obligation or lessen a
resource. Capital Receipts, as referenced above, are non-repeating in nature.
What's more, such receipts are additionally not gotten sometimes. From the
above definition, unmistakably a receipt can be called capital receipt on the off
chance that it holds fast to in any event one of the accompanying conditions –

• It should make a risk. For instance, if an organization takes a credit from a

bank or a monetary establishment, at that point it would make an obligation. That
is the reason it is a capital receipt in nature. Yet, in the event that an organization
got a commission for utilizing its skill in delivering an uncommon kind of item
for another organization, it would not be known as a capital receipt since it didn't
make any obligation.

• It should diminish the resources of the organization. For instance, if an

organization sells out its offers to general society, it would help diminish the
resource, which could make more cash later on.

Sorts of Capital Receipts

Capital Receipts can be characterized into three kinds.

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1.Borrowing assets

At the point when an organization takes credits from banks or monetary

establishments, at that point it would be called obtaining reserves. Obtaining
assets from a monetary foundation is one of three types of capital receipts.

2.Recovery of advances

To recuperate advances, regularly, the organization needs to put aside one piece
of resources, which decreases the estimation of resources. This is the second sort
of capital receipts.

3.Other Capital Receipts

There's a third kind of receipts that we call "other capital receipts." Under this,
we incorporate disinvestment and little investment funds. Disinvestment implies
auctioning off one piece of the business. Disinvestment is called capital receipt
since it diminished the resource of the organization. Little investment funds are
called capital receipts since they make an obligation for the business.

Examples of Capital Receipts clarify every one of them and find why they can be
called capital receipts.

Capital Receipts Example: The cash got from the investors

At the point when an organization needs more cash, it can go for starting public
contributions (IPOs), encourages an organization to get public. At the point when
a firm gets public, at that point they offer their offers to the general population.
Individuals who own the portions of the organization are called investors of the
organization. Investors of the organization hold portions of the organization in
lieu of offering cash to the organization. That implies when an individual buys an
offer, he parts with the cost of the offer to the organization. Through IPOs, the

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organization brings in a great deal of cash. What's more, this cash got from the
investors can be called capital receipts on the grounds that –

•The cash got from the investors makes an obligation for the organization.

•The cash got from the investors is non-repeating in nature.

•The cash got from the investors is likewise non-everyday practice, which means
it doesn't occur occasionally.

Capital Receipts Example: – Loans taken from banks or monetary

establishments

Regularly business needs to put away cash to help any new undertaking or
association or development. However, business consistently doesn't have the cash
to contribute. That is the reason they go out to a bank or any monetary
establishment to raise credits. These credits can be either made sure about
advances or unstable advances. The cash got from these credits is then utilized
for putting resources into the new venture or for growing their business. These
credits taken from banks or monetary organizations are capital receipts on the
grounds that –

• These credits make obligation for the organization.

• These credits are non-repeating in nature.

• These credits are not taken once in a while.

Capital Receipts Example: – Sale of Equipment

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On the off chance that an organization sells out one of its gear to get money, it
would be a capital receipt as well. Here are the reasons why this is additionally a
capital receipt –

• Sale of hardware diminishes the estimation of resources of the

organization.

• Sale of hardware is non-repeating in nature.

• Sale of hardware is non-daily schedule also

Capital receipts are the sums gotten as

(a) extra capital presented in the business,

(b) credits got, and

(c) deal continues of fixed resources.

You know that a credit taken by the business is repayable eventually. Likewise,
extra capital got speaks to an expansion in the owner's case over the business
resources. Hence, these two things speak to increment in liabilities of the business
and clearly are not livelihoods or, incomes. These are capital receipts and should
be treated thusly. The deal continues of a fixed resource are likewise treated as a
capital receipt in light of the fact that the sum got isn't income, acquired in the
typical course of business. The capital receipts increment the liabilities or
diminish he resources. They don't influence the benefit or misfortune. loss.

What are Revenue Receipts?

Revenue Receipts are those receipts that neither decrease the resources of the

organization, nor they make any obligation. They are continually repeating in

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nature, and they are acquired during the typical course of business. From the

definition, plainly any kind of receipt needs to fulfil one of the two conditions to

be called as income receipt –

• First, it should not diminish the resources of the organization.

• Second, it should not make any risk for the organization.

Since income receipts appear to be something contrary to capital receipts, it

bodes well to take a gander at various highlights of income receipts so we can

comprehend the importance of income receipts and can contrast with the

highlights of capital receipts.

Means for endurance: A business begins its tasks since it hopes to get cash

because of their support of their clients. It is possible that they can sell a lot of

items, or they can offer administrations. Regardless of what they do, without

income receipts, they can't get by for long on the grounds that income receipts

are gathered from the immediate activities of the business.

•Applicable for a present moment: Revenue receipts are cash gotten for a brief

period. The advantage of income receipts must be appreciated for one

bookkeeping year and not more.

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•Recurring: Since income receipts offer advantages for a brief period, the

income receipts should be repeating. In the event that income receipts don't

repeat, the business wouldn't have the option to sustain for long.

•Affects the benefit/misfortune: Receiving income straightforwardly influences

the benefit/loss of the business. At the point when the income is gotten, either

benefit is expanded, or misfortune is diminished.

•A limited quantity (volume): Compared to capital receipts, the quantity of

income receipts is generally more modest. That doesn't mean all income receipts

are more modest. For instance, if an organization sells 1 million items in a given

year, the income receipts could be enormous and could likewise be more than its

capital receipts during the year

Segments of Non-Tax Revenue

There are a few administrations gave by the public authority that makes the

sources or segments of non-charge income. Here are instances of certain

segments of non-charge incomes are as per the following:

•Interest: It involves interest of advances given to states and association regions

for reasons like non-plan plans (e.g., flood control) and arranged plans with

development time of 20 years, for example, modernisation of police powers and

furthermore interest on advances progressed to Public Sector Enterprises (PSEs),

Port Trusts and other legal bodies and so on

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•Dividends and benefits: This incorporate profits constantly from PSEs just as

the exchange of surplus from Reserve Bank of India.

•Petroleum permit: This incorporates expenses to get the selective appropriate

for investigation in a specific area. Such charges might be as sovereignty, portion

of the benefit procured from contact regions during a particular period, Petroleum

Exploration License (PEL) expense or Production Level Payment (PLP).

•Power supply charges: This incorporates expenses got by Central Electricity

Authority from the stock of intensity under the Electricity (Supply) Act.

•Fees for Communication Services: This chiefly incorporates the permit

expenses from telecom administrators by virtue of range utilization charges that

authorized Telecom Service Providers pay to the Department of Telecom

•Broadcasting charges: It incorporates permit expense paid by DTH

administrators, business TV administrations, business FM radio administrations

and so on

•Road, Bridges utilization charges: This remembers receipts through cost courts

for record of the use of public thruways, lasting extensions and so forth

•Examination charges: This incorporates expenses paid by candidates of serious

assessments directed by the Union Public Service Commission (UPSC) and Staff

Selection Commission (SSC) to top off opportunities in government workplaces.

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•Fee for police benefits: This incorporates expense got for providing focal police

powers to state governments and different gatherings like Central Industrial

Police Force (CISF) to businesses and so on

•Sale of writing material, periodicals and so on: This incorporates receipts under

'Writing material and Printing' identifying with the offer of writing material,

papers, government distributions, and so on

•Fee for Administrative Services: This incorporates expenses got for offering

types of assistance like review administrations, issuance of identification, visa

and so on

•Receipts identifying with Defence Services: This identifies with administrations

gave through Canteen Stores Department (CSD).

Significance of Non-Tax Revenue

Assessment income is the greatest wellspring of income for the public authority;

however, the measure of duty assortment may change because of the business

circumstance, utilization levels and so on, which the non-charge incomes fairly

offset with low, yet consistent progression of income from a wide number of

sources. Aside from a wellspring of acquiring for the public authority, non-charge

incomes likewise help in recuperating the expense of administrations advertised.

TAX REVENUE

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Tax Revenue-Direct Tax and Indirect Tax

Assessment is an obligatory instalment that is made to the public authority by

individuals or the organizations without having any immediate advantage

consequently. The amount of all receipts from the assessments and any remaining

obligations under the public authority are alluded to as expense income. They are

either from direct assessments or circuitous expenses. It is the principal

wellspring of ordinary receipts of the public authority and is ordered into Direct

Taxes and Indirect Taxes

What are Direct Taxes?

The charges that are forced on the property and pay of an individual and an

organization are known as immediate expenses. Direct expenses are paid

straightforwardly to the public authority by the organizations and the people. The

pay level, just as the buying intensity of the individuals, are influenced by direct

charges. It likewise helps in changing the degree of total interest of the economy.

Direct Tax Systems can be reformist, backward, or corresponding.

Aberrant Taxes - The charges that influence the pay and property of an

individual and an organization through their utilization use are called roundabout

expenses. Roundabout assessments are forced on products and ventures and are

known to be obligatory instalments. Income Receipts Example: 1 – Revenue

acquired by auctioning off waste/piece material. At the point when a firm doesn't

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utilize the waste material or scram things, they choose to auction it. By selling

scrap things, the business brings in a decent measure of cash. We will consider it

an income receipt. We will call it income receipt due to the accompanying reasons

• Selling off pieces doesn't decrease the resources of the organization.

• Selling off pieces doesn't make any obligation for the organization.

Income Receipts Example 2 Discount got from sellers

At the point when a firm buys crude materials, they select merchants from whom

they purchase the fixings. Regularly when the firm pays on schedule or early,

merchants offer a rebate. This rebate got from sellers would be income receipt on

the grounds that –

• Discount got from sellers doesn't decrease the resources of the

organization.

• Discount got from sellers doesn't make any risk for the organization.

Revenue receipt Receipts Example 3: Services gave at the point when a firm

offers types of assistance to its customers or clients, they acquire incomes. We

will call them income receipts since • Services gave to customers don't lessen

the resources of the organization.

• Services gave to customers don't make any obligation.

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• And it is repeating in nature.

Revenue Receipts Example 4: Interest got in the event that a firm has placed its

cash in any bank or monetary establishment, it will get revenue as its prize. It is

an income receipt in light of the fact that –

• It doesn't make any risk of the organization.

• It additionally doesn't decrease the resources of the organization. Revenue

Receipts Example 5: Rent got in the event that a firm offers their place to
another organization, they can gather lease, and it would be considered as income
receipt for the accompanying reasons –

• Rent would be gotten each month; that implies it is repeating in nature.

• Rent got wouldn't make any risk for the organization.

• It would likewise not decrease the resources of the organization.

Income receipts are the sums gotten in the typical and customary course of

business. They appear as

(a) deal continues of merchandise, and

(b) salaries, for example, premium procured, commission acquired, lease got, and

so on These receipts are because of merchandise sold or a few administrations

delivered by the business and as such they are not repayable. All income receipts

are treated as livelihoods and appeared on the credit side of the Profit and Loss

Account.

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CAPITAL EXPENDITURE REVENUE EXPENDITURE

Expenditure incurred for acquiring The expense incurred for maintaining

assets to add up capacity of and the day-to-day activities of a business,
existing asset that results in does not add up to the the value of an
increasing life years for the asset asset

involves acquisition of asset incurred in the conduct of business

It increases the value of the business It maintains the value of the business

Nature=non-repeating Nature-repeating

It is long term It is short term

So not reduce business revenue Reduce business revenue

It has availability for capitalisation It does not hold availability for

capitalisation

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CAPITAL RECEIPTS REVENUE RECEIPTS

Capital receipts are income from non- Revenue receipts are income that is
recurring streams non-usual earned from day-to-day operations.
operations.

received from financial and investing received from sales, discount from
activities. customer.

Nature-non-recurring Nature-recurring

It either creates liability or reduces It does not reduce asset neither create
assets. any liability.

They are used to meet capital They are used to meet revenue
expenditure, pay debts, buy assets etc. expenditure such as rent, electricity,
salary etc.

Capital receipts come in balance sheet Revenue receipt comes in income

of a company. statement.

They are not available for distribution They are available for distribution of
of profits profits.

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Case Study

• X India Pvt. Ltd. Co. purchased wooden doll making 1 machine

on 1/1/2001 from Australia.

• Cost of the machine 1 Crore (90Lakhs Machine cost + 10Lakhs

all other cost before put into use)

• Life of that machine is 10 years. (can't produce 1product after

that in good quality)

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 Capital Expenditures

In the first year the machine costs 90Lakhs + 10Lakhs = 1 Crore

10 Lakhs is treated as Capital expenditure

Note: - At the time of acquisition of permanent asset.

• After 2.5-year 3rd service is given to the machine - Rs.5000 + Rs.10000 –

additional Service Charge.

• 10,000 add. Service charge made to increase the quality of

asset(machinery) and also asset value also increases.

• 3.5-year 4th service - Rs.5000 + Rs.5000 - Additional expense

• It is done to increase the quantity of output.

• 1/1/2011 Service Rs.25000 taken for few more months to run

Revenue Expenditure

• 5.5-year 6th service - Rs.5000

• Services at regular interval for fixed price.

• 6.5-year 2nd service - Rs.5000 + Rs.10000 Repair Charges

• Repair charges of machinery when that asset uses.

• 7.5-year 8th service - Rs.5000 + Replacement of asset

• This replacement of asset does not increase value of asset / quality.

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CONCLUSION

Capital expenditure and receipt and revenue expenditure and

revenue receipt are used to define the asset-liability status of
the company. Capital and Revenue expenditure both are
important for the business for earning a profit in the present as
well as in subsequent years. Both have their own benefits and
drawbacks. In case of capital expenditure an asset has been
purchased by the company which generate revenue for
upcoming years. On the other hand, no asset is required as such
in the case of revenue expenditure. These both are significant
sides to analyse the performance of the company or any
institution.

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BIBLIOGRAPHY

1. Investopedia.com
2. Accountingtools.com
3. Groww.in
4. Acknowledge.com
5. Ts Grewal
6. Dk Goel

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