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Accountancy · Class 11 Commerce

Ch 11Capital and Revenue Transactions — Class 11 Accountancy, concept-first.

Every transaction a business enters into must eventually be classified as either a Capital item or a Revenue item, before it can be correctly placed in the Trading Account, the Profit and Loss Account, or the Balance Sheet.

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Key concepts

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Capital Expenditure

Capital Expenditure is expenditure whose benefit is not exhausted within the current accounting year — it acquires a new fixed asset, extends or improves an existing one, increases earning capacity, acquires a right (pat…

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Chapter contents

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Overview

Every transaction a business enters into must eventually be classified as either a Capital item or a Revenue item, before it can be correctly placed in the Trading Account, the Profit and Loss Account…

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Capital Expenditure

Capital Expenditure is expenditure whose benefit is NOT exhausted in the accounting year in which it is incurred — it yields benefit over several future accounting years.

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Revenue Expenditure

Revenue Expenditure is expenditure whose benefit is fully consumed WITHIN the accounting year in which it is incurred.

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Distinction Between Capital and Revenue Expenditure

Basis Capital Expenditure Revenue Expenditure --------- Duration of benefit Benefit lasts for more than one accounting year Benefit is exhausted within the current accounting year Nature Acquires, ext…

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Deferred Revenue Expenditure

Deferred Revenue Expenditure sits between Capital and Revenue Expenditure: it is, by nature, a Revenue Expenditure (it does not create or improve any fixed asset), but it is of an unusually large amou…

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Capital Receipts and Revenue Receipts

Capital Receipts are amounts received that are NOT earned from the normal trading/operating activity of the business, and are not credited to the Profit and Loss Account — they either increase a liabi…

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Capital and Revenue Profits/Losses, and the Effect of Wrong Classification

Capital Profit/Loss arises from a transaction OTHER than the regular sale of goods — most commonly, profit or loss on the sale of a fixed asset (selling a machine for more, or less, than its book valu…

Sample & Board Papers

Sample papers and previous-year board questions for this subject.

+Show 9 questions9 questions
  1. Q1Expenditure incurred ₹ 20,000 for trial run of a newly installed machinery will be : (a) Capital expenditure (b) Preliminary expense (c) Def…Preview
  2. Q2Distinguish between capital receipt and revenue receipt.Preview
  3. Q3Revenue expenditure is intended to benefit : (a) Current period (b) Past period (c) Any period (d) Future periodPreview
  4. Q4What is Deferred Revenue Expenditure ? Give two examples.Preview
  5. Q5Expenditure incurred ₹ 20,000 for trial run of a newly installed machinery will be : (a) Capital expenditure (b) Preliminary expense (c) Def…Preview
  6. Q6Classify the following expenses as Capital or Revenue. (i) Carriage of ₹ 1,000 spent on machinery purchased and installed. (ii) Hire charges…Preview
  7. Q7Interest on bank deposits is (a) Capital receipt (b) Revenue receipt (c) Capital expenditures (d) Revenue expendituresPreview
  8. Q8Classify the following items into capital and revenue (i) Carriage paid on goods purchased. (ii) Registration expenses incurred for the purc…Preview
  9. Q9Classify the following receipts into capital and revenue. (i) Sale proceeds of goods ₹75,000 (ii) Loan borrowed from bank ₹2,50,000 (iii) Sa…Preview

More questions

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+Show 7 questions7 questions
  1. Q1Installation charges paid on newly purchased machinery should be treated as: (A) Revenue Expenditure, debited to the Profit and Loss Account…Free
  2. Q2Repainting an existing office building to keep it in its usual condition is: (A) Capital Expenditure (B) Revenue Expenditure (C) Deferred Re…Free
  3. Q3A heavy, one-time advertisement expenditure to launch a new product, whose benefit is expected to continue for the next 4 years, is best cla…Free
  4. Q4Which of the following is a Capital Receipt? (A) Cash received from sale of goods (B) Interest received on a fixed deposit (C) A bank loan r…Preview
  5. Q5Profit earned on the sale of an old machine, sold for more than its book value, is an example of: (A) Revenue Profit (B) Capital Profit (C)…Preview
  6. Q6If a Capital Expenditure is wrongly treated as a Revenue Expenditure in a given year, the effect is: (A) Both profit and fixed assets are ov…Preview
  7. Q7Legal charges paid for the purchase of a building should be: (A) Debited to a separate Legal Charges Account and treated as Revenue Expendit…Preview
+Show 2 questions2 questions
  1. Example 8A trader purchased a second-hand machine for ₹80,000 and spent ₹15,000 on its overhauling before it could be used. He wrongly debited the en…Free
  2. Example 9A business spent ₹1,00,000 on a heavy advertisement campaign to launch a new product in the year 2023-24, and management estimates the benef…Preview