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Difference between capital expenditure & differed …

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Difference between capital expenditure & differed revenue expenditure ?

Posted by Samyak Jain 4 years, 9 months ago

CBSE > Class 11 > Accountancy

1 answers

Sia ? 4 years, 9 months ago

The CAPEX is written off using depreciation expense. However, in case of deferred revenue expenditure, it is written off over the following 3 to 5 years from the year incurred.
The benefits from capital expenditure accrue for a more extended period in the business for like 10 years or more. On the other hand, the benefits from deferred revenue expenditure are reaped between 3 to 5 years of the business.
Capital expenditure is incurred, which helps in the creation of the asset. Since the investment done helps in the creation of assets, these can be created into cash as and when required by the business. These revenue expenditures are incurred mostly on sales promotion and advertising activities, and therefore, cannot be converted to cash.
Capital Expenditure is done towards any investment, which increases the earning capacity of a business. It may mean purchasing an asset for the business like the purchase of a plant, machinery, building, copyrights, etc. On the other hand, revenue expenditures mean to make an investment that maintains the earning capacity of the business. The company would derive the benefit from this revenue expenditure throughout one accounting period to some 3 to 5 years.

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