UGC NET COMMERCE July 2018 Q11
0. Which one of the following statements is not true?
- Option : C
- Explanation : Capital Expenditures Vs. Revenue Expenditures: The terms, capital expenditure and revenue expenditure, are used in the context of accounting for property, plant, and equipment. A capital expenditure is one which is expected to benefit two or more accounting periods. A revenue expenditure is one whose benefits are not expected to extend beyond the current period. Thus a revenue expenditure benefits only the current period or no period at all.
Capital expenditures are recorded by increasing an asset account (or by decreasing the balance of the Accumulated Depreciation account). If an asset is of limited life, its cost is depreciated (expensed) over the periods which will be benefited (to comply with the matching principle). Because a revenue expenditure does not yield benefits beyond the current period, it is recorded as an expense in the period it is made.
The distinction between capital and revenue expenditures is of significance because it involves the timing of the recognition of expense and, consequently, the determination of periodic net income. This distinction also affects the costs reflected in asset accounts which will be recovered from future periods revenues.
Examples of capital expenditures include the acquisition of land, building and/or equipment. Examples of revenue expenditures include outlays for maintenance and repair services.
