Classification of Expenditure:
Expenditure can be classified into three categories:
1. Capital Expenditure. It means an expenditure which has been incurred for the purpose of obtaining a long-term advantage for the business. Such expenditure is either incurred for acquisition of an asset (tangible or intangible) which can later be sold and converted into cash or which result in increasing the earning capacity of the business or which affords some other advantage to the business. In ether words, such an expenditure does not grow out or pertain to the running of the business proper.
Following are some of the examples of Capital expenditure:
(i) Expenditure incurred in increasing the quality of fixed assets, e.g., purchase Of additional furniture, plant, building for permanent use in the business.
(ii) Expenditure incurred in increasing the quantity of a fixed asset, e.g., expenditure incurred for increasing the useful tile or capacity or efficiency of a fixed asset. [Read more…]