INTRODUCTION
Business transactions are divided
in two categories viz. capital transactions or revenue transactions.
The business transactions, which
give benefits or provide services to the business concern for more than one
year or one accounting cycle of the business, are known as capital transactions.
Capital transactions include
Capital expenditures and Capital Receipts.
Capital Expenditures
Capital expenditures consist of
those expenditures, whose the benefit is carried over to more than one accounting
period. These expenditures are non-recurring in nature.
Features of Capital Expenditures:
i)
Purchase
of a fixed asset.
ii)
Expenses
incurred to increase the operational efficiency of the business concern.
iii)
Incidental
expenses incurred for purchasing of Assets from the time to purchase and till
asset is to be ready to use.
iv)
Expenses
incurred to modify and expansion of assets productive capacity.
Examples of Capital Expenditures
a)
Expenses
incurred in the acquisition of Land, Building, Machinery, Furniture, Car, Goodwill,
Copyright, Trade Mark, Patent Right, etc.
b)
Expenses
incurred for installation and errection of fixed assets like wages paid for
installing a plant.
c)
Expenses
incurred for modifying and expanding an existing asset like expanding a
building space.
Capital
Receipts
Capital receipt is one which is
invested in the business for a long period. It includes long term loans obtained
from outsiders like bank, relatives, friends etc and any amount realised on
sale of fixed assets. Generally they are
non-recurring in nature.
Examples of Capital Receipts:
A)
Capital
introduced by the owner
B)
Borrowed
loans from Bank, and other party’s
C)
Sales
proceeds of fixed asset
MORE EXAMPLES OF CAPITAL
EXPENDITURS
1.
Purchase
of furniture Rs.10,000. Reason: the acquisition of fixed asset.
2.
Purchase
of second hand machinery Rs.42,000. Reason: the acquisition of fixed asset.
3.
Rs.1750
paid for repairs on second hand machinery as soon as it was purchased. Reason: amount
spent for bringing the asset into working condition.
4.
Rs.6000
wages paid for installation of plant. Reason: amount spent for bringing the
asset into working condition.
5.
Expenses
in connection with getting a license were Rs.20,000. Reason: as the amount was
spent on acquiring a right to carry on business.
6.
Rs.1000
spent towards replacement of a worn out part in a machinery. Reason: amount
spent to increase the working condition of the machinery.
7.
Rs.2,500
spent for legal expenses in relation to raising of a loan for the business. Reason:
amount spent for capital receipt.
8.
Rs.8,000
spent on replacing a petrol engine by a diesel engine. Reason: amount spent to
reduce cost of production
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