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Capital transactions
The business transactions, which provide benefits or supply services to the business concern for more than one year or one operating cycle of the business, are known as capital transactions.
The transactions which relate to capital are again sub-divided into capital expenditure and capital receipt.
Capital Expenditure
Capital expenditure consist of those expenditures, the benefit of which is carried over to several accounting periods. In other words the benefit of which is not consumed within one accounting period. It is non-recurring in nature.
Characteristics
In other words, it refers to the expenditure, which may be
i. purchase of a fixed asset.
ii. not acquired for sale.
iii. it is non-recurring in nature.
iv. incurred to increase the operational efficiency of the business concern.
Examples
i. Expenses incurred in the acquisition of Land, Building, Machinery, Furniture, Car, Goodwill, Copyright, Trade Mark, Patent Right, etc.
ii. Expenses incurred for increasing the seating accommodation in a cinema hall.
iii. Expenses incurred for installation of fixed assets like wages paid for installing a plant.
iv. Expenses incurred for remodelling and reconditioning an existing asset like remodeling a building.
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Capital Receipt
Capital receipt is one which is invested in the business for a long period. It includes long term loans obtained from others and any amount realised on sale of fixed assets. It is generally non-recurring in nature.
Characteristics
i. Amount is not received in the normal course of business.
ii. It is non-recurring in nature.
Examples
i. Capital introduced by the owner
ii. Borrowed loans
iii. Sale of fixed asset
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