Which of the following transactions is a revenue expenditure?

Answer Details

Revenue expenditure is spending incurred to keep a business running on a day-to-day basis, benefiting only the current accounting period, and is charged in full to the profit and loss account as an expense. Capital expenditure, by contrast, is spending that acquires or improves a long-term (fixed) asset, providing benefit over several years, and is added to the cost of the asset in the balance sheet rather than expensed immediately.

Buying fuel for a vehicle is a routine running cost: the fuel is consumed almost immediately in the ordinary course of using the vehicle, and it does not add any lasting value to the vehicle itself. This makes it revenue expenditure.

The remaining items all involve acquiring or upgrading a long-term asset. Purchasing a new engine improves and extends the useful life of the existing vehicle rather than merely maintaining it, so it is capital expenditure. Constructing an office wall creates a lasting structural improvement, and purchasing a plant acquires a fixed asset outright; both are capital expenditure.

Examination reminder: ask whether the spending merely keeps an existing asset running for now (revenue expenditure) or adds a new asset, or lasting improvement to one, that will benefit future periods (capital expenditure).