For computing profits of a business taxable under this Act, only revenue expenses are allowed to be deducted. Deferral (deferred charge) Deferred charge (or deferral) is cost that is accounted-for in latter accounting period for its anticipated future benefit, or to comply with the requirement of matching costs with revenues. Fictitious means “Fake”. Capital expenditure can be easily defined as money spent for purchase or creating of long-term assets such as building, furniture, machines, vehicles, etc. Cost of goodwill, trademarks, patents, copyright, patterns and designs. Certain expenses though of revenue nature but likely to give benefit for more than one accounting year are treated as Deferred Revenue Expenditure like Advertisement expenses. Such expenditure should normally be written off over a period of 3 to 5 years. Both prepaid and deferred expenses are advance payments, but there are differences between the two common accounting terms. the examples are loss on issue of shares advertising expenses and preliminary expenses. Examples of deferred revenue expenditure are advertisement costs incurred, training expenses for employees of the company. Revenue Transaction. Difference/Distinction between Capital and Revenue Expenditures: The cost of installing an air conditioning unit in an automobile or replacement of a power unit attached to a machine by one of greater capacity should be treated as a capital expenditure. Prepaid expenses may include items such as rent, interest, supplies and insurance premiums. Definition: A revenue expenditure, also called an income statement expenditure, is a cost related to assets that are not capitalized because they will not provide a financial benefit in future periods. Prepaid expenses, on the other hand, are costs that the business pays in advance prior to when the costs are actually incurred. This article concentrates on communicating the difference between Capital Expenditure and Revenue Expenditure. Examples: Deferred Cost such as Preliminary Expenses, Loss on issue of shares Discount on issue of shares, Loss on issue of debentures and Discount on issue of debentures. Revenue Expenditures. The amount that has not been expensed as of the balance sheet date will be reported as a current asset. Therefore, the distinction depends on facts and surrounding circumstances of each case. Goodwill does not appear in the balance sheet except when it is actually purchased. Combined capital and deferred revenue expenditure depreciated. Revenue expenditures are often discussed in the context of fixed assets. Deferred revenue expenditure refers to that expense which is incurred in the current year but the benefit of it will be spread over 2 to 5 years and hence full amount of expenditure is not shown in the current year rather it is spread over the years. capacity of business and revenue expenditure is aimed at maintaining that earning capacity. Revenue Expenditure is that part of government expenditure that does not result in the creation of assets. Capital expenditure is shown as an asset in the balance sheet. Deferred Revenue Expenditure is that expenditure which yields benefits which extend beyond a current accounting period, but no relatively a short period as compared to the period for which a capital expenditure is expected to yields benefits. The assets which have no market value are called fictitious assets. Deferred Revenue and Expenditure – Asset and Liability Method. CAPITAL EXPENDITURE. Revenue . Intangible Assets Fictitious Assets The intangible assets can be realize. 27 Deferred Revenue Expenditure Sometimes losses may be suffered of an exceptional nature e.g. Difference between capital and revenue expenditures affects the fundamental principle of correct accounting. Some Other Types of Assets. Difference between Deferred Expense and Prepaid Expense. The revenue expenditures take place after a fixed asset had been put into service and simply keeps the asset in working order. Capital Receipts and Revenue Receipts : Receipts which arise in course of normal business activities are revenue receipts. Such class of revenue expenditure is regarded as deferred revenue expenditure. The difference between revenue expenditures and capital expenditures is another example of two similar terms that are easily mixed up. Sep 04,2020 - Difference between fictitious assets and deferred revenue.? Key Differences Between Capital and Revenue Expenditure. The major difference between the two is that the Capital expenditure is a one-time investment of money. The amount which has not been debited to the profit and loss account of the current year is shown in the balance sheet on the assets side and it is known as fictitious asset. Revenue is the cash inflow or receivables arising in the course of business activities of an enterprise from the sale of goods or from rendering services or interests earned from the usage of business resources by others, dividends on business investments, etc. It is shown as fictitious assets in the balance sheet. Following are the most important items of capital expenditure:-Purchase of factory and building. The differences between capital expenditures and revenue expenditures include whether the purchases will be used over the long-term or short-term. “Deferred Revenue Expenditure is an expenditure for which payment has been made but it is assumed that the benefit will extend over a subsequent period or periods.” Deferred revenue expenditure is a revenue expenditure by nature. Expenditures that are incurred once in many years which help in increasing the working capacity and revenue generating capacity of the business: Sometimes, the benefits from revenue expenditure are not restricted to only one year but are extended over many years. Understanding the difference is … There different types of capital expenditure, for example. Purchase of machine, furniture, motor vehicle, office equipment etc. What is the difference between deferred revenue and unearned revenue? On the contrary, revenue expenditure occurs frequently. There are two methods of recording revenue and expenditure deferrals, this first is the asset and liability method shown immediately below, and the second is the revenue and expenses method detailed later in this post. Fictitious Assets. The intangible assets also don’t posses physical existence like intangible asset. Fictituous assets are not assets actually, they are expenses and losses shown on asset side of the Balance sheet. The tax treatment of revenue expenditure should not differ from the accounts treatment where revenue expenditure is … Capital expenditures (CAPEX) are … Cash money spent on business purposes. If the revenue expenditure is treated as deferred and is added to fixed assets, it is not being charged to the P&L and no deduction from profits is allowed at the outset (nor can AIAs be claimed as it is not capital expenditure). Deferred charges may include professional fees and the amortization cost (lose of value) of intangible assets, such as copyrights and research and development. These expenses are written off over a period of 3-4 years and till they are written off, they are depicted in the balance sheet as non-current assets. Proper adjustments are necessary before preparation of the final accounts. The revenue expenditures just maintain the earning capacity of the business. Though the dividing line between a capital and revenue expenditure is real, yet sometimes it becomes difficult to draw. but these assets are the revenue expenditure of capital nature which are also termed as deferred revenue expenditure. What is a revenue expenditure? Understanding how each should be tracked can mean big savings over time and should be a firm part of your accounting strategy. Examples of capital expenditures . The key difference between Expense vs Expenditure is that Expense refers to the amount spent by the business organization for the ongoing operations of the business in order to ensure the generation of the revenue, whereas, the expenditure refers to the amount spent by the business organization for the purpose of purchasing the fixed assets or for increasing fixed assets value. Revenue expenditure is that which is incurred in anticipation of generating future income for not more than one yr for example- exp incurred in sales promotion and advertisement of an enterprise. Revenue expense gives benefit only in the financial period in which it is incurred. The major difference The single major difference between revenue (an income statement item) and assets (balance sheet items) is that revenue is recorded over the course of a period. | EduRev Class 11 Question is disucussed on EduRev Study Group by 100 Class 11 Students. Revenue expenses are incurred when a company purchases products or services necessary for … The fictitious can not be realize. It appears that most accountants refer to the deferrals that will become expenses within one year of the balance sheet as prepaid expenses. (The amount spent to acquire a fixed asset is referred to as a capital expenditure. Purchasing of Plants and machinery items; IT items ; Electric power equipment; Permanent additions to existing fixed assets; Learn more about Determining Capital or Revenue Nature here. All items of capital and expenditure will find place in the balance sheet whereas all items of revenue expenditure will be included in the profit and loss account. Fictious assets are those assets which couldn’t be written off during the present accounting period. Capital expenditure generates future economic benefits, but the Revenue expenditure generates benefit for the current year only. 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