Capital expenditures and revenue expenditures are treated differently in accounting. Capital expenditure relates to expenditure on non-current assets, whereas revenue expenditure is expenditure relating to the day to day trading activities of the business.
Capital and Revenue Expenditure November 6th, 2016Team
A business will often purchase a number of long term assets for a single combined purchase price. In order to record the assets in the accounting records and to allow depreciation to be correctly calculated, the basket purchase price needs to be allocated in proportion to the fair market value of the assets.
When a business has a disposal of fixed assets, the original cost and the accumulated depreciation to the date of disposal relating to those fixed assets must be removed from the accounting records. A disposal of fixed assets can occur when the asset is scrapped and written off, sold for a profit to give a gain on disposal, or sold for a loss to give a loss on disposal.
Disposal of Fixed Assets – What are the Journal Entries? November 6th, 2016Team
Fixed assets have a long life and are for use within the business and not held for resale. They are not part of the trading stock, and are not involved in the day to day working capital cycle of the business so are not readily convertible into cash.