Chapter 7 – Non-current assets & depreciation

What is capital expenditure?

• Expenditure on purchase of long-term assets

• Or expenditure leading to improvement in their earning capacity

• Long-term assets = non-current assets = assets to be used in business > 1 year

What is revenue expenditure?

• All expenditure other than capital expenditure

• Relates to day-to-day running costs of business

TYU1 – Classify items into capital and revenue expenditure

• Purchase of machinery

• Purchase of land and buildings

• Payment of cash to repair machinery

• Payment of electricity bill

• Payment of factory supervisor’s salary

What is a non-current asset?

• Asset for long-term use in business

• Eg: buildings, machinery, motor vehicles, fixtures & fittings

What is the cost of a non-current asset?

• any amount incurred to acquire asset & bring it into working condition

What is included in the cost of a non-current asset?

Capital expenditure such as:

• purchase price

• delivery costs

• legal fees

• subsequent expenditure which enhances the asset

What is excluded from the cost of a non-current asset?

Revenue expenditure such as:

• repairs

• renewals

• repainting

How are non-current assets recorded?

• Non-current assets are capitalised

• ie inc on SFP