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Finance & Accounting
Pages 8 (2008 words)
Business Taxation Capital and revenue expenditure divide has been a major topic of discussion among business people, tax advisors, and judges for quite a long time. There is no simple test that can help decide on the issue in all the circumstances. At times, various judicial judgments lead to conflicting conclusions, too…
Understanding Revenue and Capital Expenditures Revenue expenditures such as rent of premises for conducting business, employee wages, raw materials and many such items are ongoing expenditures that are necessary to generate business profits. Revenue expenditure is also known as circulating capital that means capital changes hands to produce profit and loss. On the other hand, capital expenditures such as purchasing land or building, plant and machinery or goodwill form a long-term expenditure that accrue benefits until its useful life. The Statute ICTA88/S74 (1) (a) provides that only those expenditures are allowed for deductions that are "incurred wholly and exclusively for the purpose of trade" (BIM37035). However, capital expenditures are not allowed for deductions fully, and its treatment is governed by different statutes, as incorporated by the governing office from time to time. Capital Expenditures – Differential Treatment in GAAP and Income Tax It is important to note that accountancy and income tax laws are not fully in alignment as far as treatment of capital expenditure is concerned. ...
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