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Hello Sir,
Hurling Co upgrade their website during the year at a cost of $1.1m, This costs should be correctly allocated between revenue and capital expenditure.(Extracted from bpp practice and revision kit)
Can you please explain why the upgraded website has to be allocated between revenue and capital expenditure? I actually don’t get the rationale behind allocating upgrade of website to revenue?
It means allocate between:
– capital expense (i.e. expenditure recognised as an asset in SoFP); and
– revenue expense (i.e. expense recognised in profit or loss).(It does not mean “revenue” as in income.)
For any major “upgrading”, management should distinguish between what is replacement/renewal cost (i.e. expense to profit or loss) and what is addition to cost of the asset.
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