Accounting Analysis

[Name of the Institute]Accounting Analysis

Difference between Capital Expenditure and Revenue Expenditure

The capital expenditure is the inclusive of all the expenditures of the business that incurred while the fixed assets are being purchase. The cost subsequently incurs when there is increase in the earning capacity of the fixed asset that is being considered as the capital expenditure. On the other hand the revenue expenditure includes all the business costs which incurs its normal day to day for the operational activities.

The effect of capital expenditure is for long term while the revenue expenditure effects temporarily. The effect of capital expenditure is reduced gradually or the benefits of capital expenditure are enjoyed in the future for the years or the years also while on the other hand the revenue expenditure is shattered for the current accounting year. The capital expenditure does not occur again and again while the expenditure on the revenue occurs repeatedly. Generally the capital expenditure has its physical existence on the other hand the revenue expenditure does not have the physical existence (Blažek, 2010).

Calculation of depreciation

There are various methods of calculation of depreciation. These are discussed below.

Straight line Depreciation

The straight method of depreciation is the simplest method of depreciation which is being used for the cost estimation using the salvage value and the asset at the end of the useful life of the asset in order to generate the revenue. The formula for the calculation of straight line depreciation is as follows.

Straight line Depreciation = Cost of the fixed asset - Residual Value /Estimated Useful life of the Asset

Declining Balance Method

Assume that a business has an asset and its original cost os $ 2000, the salvage value is 500 and having three years of expected useful life.The rate of depreciation is 50%. Calculate Depreciation using declining balance method.

 

 

 

 

 

 

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