Capital and revenue expenditure

AAT Level 3

Non-current asset

Assets purchased with the intention of long term use

Capital expenditure

Expenditure on the purchase or improvement of non current assets

Revenue expenditure

All other expenditure incurred but the business other than capital expenditure

Authorizing capital expenditure

details for acquisition are likely to include:

-date

-description of asset

-reason for purchase

-supplier

-cost/quotation

-details of quotation

-details of lease agreement

-authorization

-method of financing

Cost

Purchase price + additional costs

Non current asset ledger (bank/cheque)

Dr non current asset account

Cr bank account

Non current asset ledger account (credit)

Dr non current asset account

Cr payables/ loan account

Journal

Used for transactions that do not appear in other primary records of the business

Non current asset & vat

Cost of non current asset is net, vat can be recovered from hmrc

Cars & vat

Cost to be capitalised must include vat, not possible for vat to be recovered

Production cost

Direct cost of production including material, expenses and labour plus overheads relating to production

Capitalising subsequent expenditure

• where it enhances value of the asset

• Where a major component of the asset is replaced or restored

• Where it is a major inspection or overhaul of asset

Tangible non current asset

Assets that have a tangible form

Intangible non current assets

Assets for long term use in the business with no physical form

Goodwill

Asset arising from the fact that a going concern business is worth more in total value of its tangible net assets

Non current asset register

• asset description

• Asset identification

• Asset location

• Date of purchase

• Purchase price

• Supplier name and adress

• Invoice number

• Additional enhancement expenditure

• Depreciation method

• Estimated useful life

• Estimated residual value

• Accumulated depreciation to date

• Carrying amount

• Disposal details