1 answer

Discuss (with example) the criteria to determine capital or current expences

Question:

discuss (with example) the criteria to determine capital or current expences

Answers

A current expense is the expense which reoccurs after a short period. A capital expense provides benefit or advantage for a long period of time.

The criteria to determine capital or current expenses:

  • Lasting benefit of expense. A capital expense gives lasting benefit or advantage. Example, cost of putting vinyl siding on the exterior walls of a wooden house. But current expense recurs after a short period.

    Example, the cost of painting the exterior of a wooden house.

  • Maintaining or improving the property. The expenses incurred to improves a property is a capital expense. Example : repairs expenses. An expense that does not improve the property is a current expense.
  • Whether the expense is for a part of the property or for a separate asset. The cost incurred for a separate asset within a property is a capital expense.

    For example, the cost of buying a refrigerator. The cost of replacing asset’s part is a current expense. For example, electrical wiring for a building.

  • The value of the expense. If the expense is of considerable value in relation to the property, it is a capital expense otherwise, current expense.
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