Capital and revenue income and expenditure — common mistakes

Examiners frequently test 'borderline' items. Remember that costs incurred to bring a non-current asset to its location and ready for use (e.g., delivery, installation, legal fees for purchase) are part of its capital cost. However, costs to maintain it once in use (e.g., repairs, servicing) are revenue expenditure.

It depends on whether the expenditure maintains or enhances the asset. If replacing the roof simply restores the factory to its previous condition (maintenance), it is revenue expenditure, regardless of the high cost. However, if the new roof is a significant upgrade (e.g., using superior materials that extend the factory's useful life or improve its efficiency), then it could be classified as capital expenditure. The key is enhancement vs. maintenance.

No, staff training costs are always treated as revenue expenditure. Although the benefits may last for a long time, a trained employee is not an asset that the business owns or controls in the accounting sense (they can leave at any time). Therefore, the cost is expensed to the Statement of Profit or Loss as it is incurred.

No, this is a misconception. The goal of accounting is to provide a 'true and fair view', not to be deliberately pessimistic. The accruals concept requires that costs are matched to the periods in which they provide a benefit. Capitalising an asset and depreciating it over its life is the correct application of this principle. Deliberately expensing a capital item is an accounting error that understates the value of the business's assets and its profitability in the current period.