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CMA Foundation · Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions

Ravi Traders paid Rs 8,000 to repaint its shop walls as part of routine upkeep. How should this payment be treated in the accounts?

Painting done as routine upkeep is revenue expenditure and is debited to the Profit and Loss Account, because it only maintains the shop's existing condition and does not create a new asset or increase earning capacity.

  1. ACapital expenditure, added to the cost of the shop building
  2. BRevenue expenditure, debited to the Profit and Loss AccountCorrect
  3. CDeferred revenue expenditure, spread over ten years
  4. DCapital receipt, credited to the Capital Account

Explanation

Routine repainting only maintains the existing earning capacity and gives benefit for the current period. It is therefore revenue expenditure and is charged to the Profit and Loss Account. Adding it to the building would overstate the asset.

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