Rules for Making Difference between Capital and Revenue Expenditure
Ist Rule
All expenses which are done for getting any fixed asset must be capital expenditure. For example, expenses of carriage and freight for getting fixed assets are also capital expenditure and will include in the total cost of fixed assets.
2nd Rule
All expenses which are done for increasing the size or improvement in fixed assets must be capital expenditure.
3rd Rule
All expenses which are done for getting share capital or long term loan must be capital expenditure.
4th Rule
Look also nature of business , if business is relating to general goods sale -purchase transaction then above three rules will applicable but , if nature of business shows dealing in above transaction , then above transaction becomes revenue expenditure .
5th Rule
Legal judgments is also so important for taking decision , Like Income tax law 1961 has provided some rule regarding assessment of business and profession . These rules also give good guidance for making difference between revenue and capital expenditures.
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