Capital versus revenue expenditure

A recurring concept pair, confirmed across multiple years, deciding whether spending is reported as an ASSET or as an EXPENSE.

The distinguishing test

CAPITAL expenditure buys or improves a NON-CURRENT ASSET, providing benefit over MORE THAN ONE reporting period — it is reported as an asset (or added to one) in the Statement of Financial Position.
REVENUE expenditure maintains the entity's current earning capacity, with the benefit used up WITHIN the current period — it is reported as an expense in the Income Statement.
Costs to get an asset ready for its intended use (delivery, installation) count as CAPITAL expenditure and are added to the asset's cost, not expensed separately.
Ongoing running costs of an already-working asset (fuel, routine maintenance, insurance) are REVENUE expenditure, even though they relate to a non-current asset.

Worked example Classifying a vehicle purchase and its running costs A food truck business buys a new truck for $60,000 plus

5,000 to install grills and equipment, then spends $700 a month on maintenance, petrol and insurance. Classify each. The $60,000 purchase price is CAPITAL expenditure — it buys a non-current asset providing benefit over many years. The

5,000 installation cost is ALSO capital expenditure — it is a cost of getting the truck ready for its intended use, so it is added to the asset's cost rather than expensed. The $700/month running costs are REVENUE expenditure — they maintain the truck's current earning capacity and are used up within the month they are incurred, so they are expensed as incurred. Total capital expenditure (asset cost) = $60,000 +

5,000 = $75,000. Running costs are a separate, ongoing expense line. ✓ The installation cost is the detail most often missed — it is capital, not revenue, because it is a cost incurred to get the asset ready for use, exactly like the purchase price itself. ✕

Treating every cost "related to" an asset as capital expenditure

Fuel, insurance, and routine maintenance ARE related to a non-current asset, but they do not improve it or extend its useful life — they simply keep it running day to day, so they remain revenue expenditure (an expense), not capital expenditure (an asset). Only costs that acquire the asset or get it ready for its intended use are capital.

Cost	Capital or revenue?	Where it is reported
Purchase price of a new vehicle/equipment	Capital	Added to the asset, Statement of Financial Position
Delivery and installation to get it ready for use	Capital	Added to the asset's cost
Fuel, routine servicing, insurance on a working asset	Revenue	Expense, Income Statement
An improvement that extends the asset's useful life	Capital	Added to the asset's cost
A repair that merely restores normal working condition	Revenue	Expense, Income Statement

The one-line test to fall back on

Ask: does this spending buy/improve an asset with benefit lasting MORE than one period (capital), or does it just keep an already-working asset running THIS period (revenue)?

Practice for this standard covers the whole topic — flashcards and quiz.