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for example a machine of a car is destroyed and now we have to change it .
Changing of machines car :
1) Capital expenditure
or
2) Revenue expenditure
Replacing it is capital expenditure – the new machine or car will appear on the Statement of Financial Position as a non-current asset.
Why would this not be classed as a revenue expense? Replacing a machine component of a car is a maintenance cost…
The asset is the car.
If the asset goes (whether because it is destroyed or whether it is sold) it is treated as a disposal.
If a new asset is purchased (whether we just buy an extra car or because we have disposed of the old car) then it is capital expenditure – always.If a part of a car needs replacing then all we are doing is bringing the existing asset back to its original state – we are not buying a new asset. This is therefore always revenue expenditure.
(In future, if you wish for me to answer then please ask in the Ask the Tutor Forum for F3 – this forum is for students to ask each other.)
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