Question

: Distinguishing capital expenditures from revenue expenditures consider the following expenditures:

a. Purchase price.

b. Ordinary recurring repairs to keep the machinery in good working order.

c. Lubrication before machinery is placed in service.

d. Periodic lubrication after machinery is placed in service.

e. Major overhaul to extend useful life by three years.

f. Sales tax paid on the purchase price.

g. Transportation and insurance while machinery is in transit from seller to buyer.

h. Installation.

i. Training of personnel for initial operation of the machinery. Classify each of the expenditures as a capital expenditure or revenue expenditure

Short answer

A company can incur Capital Expenditure for long-term purposes and benefits.

Revenue Expenditure is the expenditure related to the day-to-day activities of business operations.

Step-by-step solution

Meaning of Capital Expenditure and Revenue Expenditure

Capital Expenditure: All the funds utilized by the company for the acquisition and maintenance of the fixed assets are known as capital expenditure.

Revenue Expenditure: The expenses incurred to generate revenue or for managing the operating activities of the company are known as revenue expenditures.

Difference between Capital Expenditure and Revenue Expenditure 

Particular	Revenue/Capital expenditure
a. Purchase price	Capital expenditure
b. Ordinary recurring repairs to keep the machinery in good working order.	Revenue expenditure
c. Lubrication before machinery is placed in service	Capital expenditure
d. Periodic lubrication after machinery is placed in service	Revenue expenditure
e. Major overhaul to extend useful life by three years	Capital expenditure
f. Sales tax paid on the purchase price	Capital expenditure
g. Transportation and insurance while machinery is in transit from seller to buyer	Capital expenditure
h. Installation	Capital expenditure
i. Training of personnel for initial operation of the machinery. Classify each of the expenditures as a capital expenditure or revenue expenditure	Capital expenditure