CAPITAL V REVENUE EXPENDITURE

Capital v Revenue Expenditure

Capital v Revenue Expenditure

Introduction

The most important thing that has taxed the mind of judges is what capital and revenue expenditure is. This has also been a hard judgment for the judges, tax advisors, business people, inspectors and many others over the last century. No one is able to produce a simple test which can determine whether its a capital or a revenue expenditure. Many of the recopies have been devised by these concerned people for knowing the relevant result in particular circumstances, but they fail in other areas (Berman, Knight and Case, 2008, Pp 45 -65). With the development and progress of the case law the margins of uncertainty is narrowing down. Although Jenny is right that, it's quite simple what constitutes as capital expenditure as compared to revenue expenditure and to decide what qualifies as plant and machinery for the capital allowances purpose, but in order to do so, one has to take a balanced approach.

Discussion

Capital Expenditure

Tax law defines the capital expenditure as the one which is not deductible when the computation of the income is in process. On the other hand, the tax relief attracts certain types of capital expenditure; these are mostly in the form of capital allowances or standardized depreciation allowances. The cost of it is calculated for the chargeable period. This cost will benefit the organization for more than one period; they are like depreciation, which is also the type of capital allowances for a given asset. If we look at the case which constituted of income collector, Bechuanal protectorate vs. Rhodesia railways in 1933, the expenditure occurred because of the several reasons, one of them was the renewal of chains and sleepers which were considered to be an asset and later on they were turned into assets (Helliwell, 1964-1967). If in this case, the fixation of the torn chairs and sleeper were to be done, than it would have been considered as revenue expenditure. This is because of the fact that it is affecting the purchasing price of the assets and in no way the operations of the railway is affected. If we look into another example that is the CIR vs. the Law shipping company, in this case once the shipping company had made purchases of the second hand ship. A survey was conducted once the ship was purchased, the expenditure was considered as revenue expenditure in the initial phase but later on when it was realized that it had affected the operations of the ship than the expense was changed to capital expenditure.

Revenue Expenditure

This is the expenditure which is considered as a cost which will directly affect the organization current accounting period or the phase of the operation. AS seen in the case of Jones vs. Odeon associated theatres Ltd in the year 1972. The Odeon associated theatre acquired several of decorating and repairing assets. This operations repairing and decorating the cinema continued for several years. This should also be noted that the operations ...