Otter Lane Swimming Club spends $9,400 on a new filtration plant for the main pool and a further $780 on repainting the changing room walls, which are left ...

Capital expenditure buys, improves or extends a non-current asset, or brings one into use, and it is capitalised in the statement of financial position. Revenue expenditure keeps things running for the current period and is charged to the income and expenditure account.

The $9,400 filtration plant is a new item of equipment that the club will use over many years, so it is capital expenditure and is debited to a non-current asset account. The $780 of repainting leaves the changing room exactly the same size and in the same use; it restores the walls rather than improving them, and its benefit is short lived, so it is revenue expenditure. The correct classification is therefore the filtration plant is capital and the repainting is revenue.

The wording "left unchanged in size and in use" is the deciding phrase, and it is placed there deliberately: had the changing room been enlarged or converted, the cost would have been capital because the asset itself would have been improved. Treating both payments as capital would add $780 of maintenance to the value of club property, overstating assets and the surplus for the year. Treating both as revenue would charge $9,400 against a single year and leave the plant off the statement of financial position, with no depreciation charged in later years.

The question to ask each time: does the payment give the club something more than it had before, or does it simply keep what it already has in working order?