17 Case Studies of Capital and Revenue Items

Case Study - 1 

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

Capital Expenditures

• 90Lakhs + 10Lakhs = 1 Crore 

• 10 Lakhs is treated as Capital expenditure 

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

• 2.5 year 3rd service - Rs.5000 + Rs.10000 - Add. 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 - Add. exp 

• 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 increases value of asset / quality.

Case Study - 2 

Deferred Revenue Expenditure 

• A new firm or running firm have taken brand advertisement at (Rs.10 Lakh) high cost to capture market. 

• This expenses will last for quite a few years. 

• This asset (advertisement - cost Rs.10 Lakhs) can't be sold for cash, only can enjoy the benefit. 

• This expenses shown on the asset side of the balance sheet under the head "Miscellaneous Expenditure".

Capital Receipt - Case study 3 as Example 

• Money received / Receipt from sale of fixed asset or investment, secured or unsecured loans, owner's contributions, etc.

Revenue Receipt - Case study 4 as Example 

• Money received / Receipt from sale of goods are services, interest income, etc.