Capital and Revenue ICSE Class 10: Receipts and Expenditure

What Capital and Revenue is about

Weightage: CISCE publishes no chapter weightage. Section A (40 marks) is compulsory, with 1-mark MCQs and short 2-mark answers; in Section B you answer any four of six 10-mark questions.Source: CISCE ICSE Commercial Studies (631) specimen paper structure, 2025, retained for 2027 by the CISCE circular of 9 October 2026

Key concepts

Capital expenditure

Capital expenditure is money spent to acquire fixed assets, or to add to or improve them, so that the business benefits for more than one year. It increases the earning capacity of the business or reduces its running costs. It is non-recurring and shown on the assets side of the Balance Sheet.

Examples: purchase of land, building, machinery, furniture or vehicles; construction of a building; cost of installing a new machine; freight and cartage on a new machine; purchase of a second-hand machine and the repairs needed to make it ready for use; extension of a building; purchase of goodwill or a patent.

Worked example

(2 marks) Is the ₹20,000 spent on repairing a second-hand machine just bought, before it can be used, capital or revenue expenditure? Why?

Try it first, then show the solutionSolution

1. It is capital expenditure - 1 mark.
2. Repairs needed to make a newly acquired asset ready for use are part of its cost, giving benefit for many years - 1 mark.

Answer: Capital expenditure, because repairs needed to put a newly bought second-hand machine into working condition form part of the cost of the asset and benefit the business for several years.

Revenue expenditure

Revenue expenditure is money spent in the normal day-to-day running of the business, or to maintain fixed assets in working order. Its benefit is used up within the current accounting year. It is recurring and is charged to the Trading or Profit and Loss Account.

Examples: purchase of goods for resale, wages, salaries, rent, electricity, carriage inwards and outwards, advertising (ordinary), insurance premium, repairs and maintenance of existing assets, interest on loans, depreciation, stationery.

Worked example

(2 marks) Give two examples of revenue expenditure and say where they are shown.

Try it first, then show the solutionSolution

1. Examples: wages and rent - 1 mark.
2. They are shown in the Trading or Profit and Loss Account (wages in Trading, rent in P&L) - 1 mark.

Answer: Wages and rent are revenue expenditure; wages are debited to the Trading Account and rent to the Profit and Loss Account.

Differences between capital and revenue expenditure

(1) Purpose: capital expenditure acquires or improves fixed assets; revenue expenditure runs the business or maintains assets.
(2) Period of benefit: more than one year vs the current year only.
(3) Nature: non-recurring vs recurring.
(4) Earning capacity: capital expenditure increases it; revenue expenditure only maintains it.
(5) Treatment: capital expenditure appears in the Balance Sheet as an asset; revenue expenditure is debited to the Trading or Profit and Loss Account.
(6) Effect on profit: capital expenditure does not reduce the current year's profit directly (only through depreciation); revenue expenditure reduces it in full.

Worked example

(2 marks) Write any two differences between capital expenditure and revenue expenditure.

Try it first, then show the solutionSolution

1. Benefit: capital - more than one year; revenue - current year only - 1 mark.
2. Treatment: capital - Balance Sheet; revenue - Trading/P&L Account - 1 mark.

Answer: (1) Capital expenditure benefits the business for more than one year, whereas revenue expenditure benefits only the current year. (2) Capital expenditure is shown as an asset in the Balance Sheet, whereas revenue expenditure is debited to the Trading or Profit and Loss Account.

Capital receipts and revenue receipts

Capital receipts are amounts received that are not part of normal trading income; they either create a liability or reduce an asset. They are non-recurring and are shown in the Balance Sheet. Examples: capital introduced by the owner, loans taken from a bank, sale of fixed assets such as old machinery or land, issue of shares or debentures by a company.

Revenue receipts are amounts received in the normal course of business from its regular operations. They are recurring, neither create a liability nor reduce an asset, and are credited to the Trading or Profit and Loss Account. Examples: sale of goods, commission received, interest received, rent received, discount received, dividend received.

Worked example

(2 marks) Classify: (a) loan of ₹2,00,000 from a bank; (b) rent of ₹12,000 received from a tenant.

Try it first, then show the solutionSolution

1. (a) A loan creates a liability: capital receipt - 1 mark.
2. (b) Rent received is regular income: revenue receipt - 1 mark.

Answer: (a) Capital receipt, because the loan creates a liability. (b) Revenue receipt, because it is regular income credited to the Profit and Loss Account.

Deferred revenue expenditure

Deferred revenue expenditure is revenue expenditure that is unusually large and whose benefit is expected to last for several years, so it is not charged fully to the year in which it is spent; instead it is spread (written off) over the years that benefit. The part not yet written off is shown on the assets side of the Balance Sheet.

Examples: a heavy advertising campaign to launch a new product; large research and development expenses on a new product; heavy expenses on shifting the business to a better location; preliminary expenses of forming a company.

It is revenue in nature (no fixed asset is bought) but capital-like in the length of its benefit.

Worked example

(2 marks) A firm spends ₹6,00,000 on an advertising campaign whose benefit will last three years. How is it treated?

Try it first, then show the solutionSolution

1. It is deferred revenue expenditure - 1 mark.
2. ₹2,00,000 is written off each year; the balance not written off is shown as an asset - 1 mark.

Answer: It is deferred revenue expenditure: ₹6,00,000 ÷ 3 = ₹2,00,000 is charged to the Profit and Loss Account each year, and the unwritten-off balance (₹4,00,000 after the first year) appears on the assets side of the Balance Sheet.

Capital and Revenue in real life

Each concept, met in an everyday situation. Read the situation, answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Topics in this chapter

• Capital Expenditure, Revenue Expenditure and Deferred Revenue Expenditure

Capital and Revenue: key facts

Capital expenditure

Acquire or improve fixed assets; benefit > 1 year; Balance Sheet

Includes installation, freight on machine, repairs to make a second-hand asset usable.

Revenue expenditure

Day-to-day running and maintenance; benefit ≤ 1 year; Trading/P&L

Wages, rent, repairs of existing assets.

Receipts

Capital: creates liability or reduces asset; Revenue: normal income

Loan, capital, sale of asset vs sales, rent, commission.

Deferred revenue expenditure

Annual write-off = total expenditure ÷ years of benefit

Unwritten balance shown as an asset.

How the board asks Capital and Revenue

The question patterns to expect, and the method that works for each.

Tricks to remember Capital and Revenue

Short memory aids. Say each one aloud once, then use it on a question the same day.

• Keep vs run

  Spend to KEEP an asset for years = capital; spend to RUN the business this year = revenue.

  Use it when: Classifying expenditure.

• Liability or asset? Capital receipt

  If the money brings a liability (loan, capital) or takes away an asset (sale of machine), it is a capital receipt.

  Use it when: Classifying receipts.

Capital and Revenue: board-level solved questions

Ordered from board level to HOTS. Cover the solution, write your own, then compare step by step.

Case-study practice (Section B style)

Read the situation, then answer every part. In the board paper this is a 10-mark question split into 2 + 3 + 5 marks.

Where the marks are

How a typical answer is split into step marks. Show every step: a right final answer alone rarely earns full marks.

Where students lose marks in Capital and Revenue

The slips examiners see most often, and what to write instead.

• ✗Mistake: Treating repairs to a newly bought second-hand asset as revenue

  The 2025 examiners reported candidates writing 'revenue expenditure' for a second-hand machine made ready for use.

  ✓Do this: Any cost to make a new asset ready for use is capital.

  Usually costs: 1 mark.

• ✗Mistake: Confusing revenue expenditure with deferred revenue expenditure

  In 2025 candidates classed a ₹5,00,000 advertising campaign as ordinary revenue expenditure.

  ✓Do this: Large spending with benefit over several years and no asset = deferred revenue expenditure.

  Usually costs: 1 mark.

• ✗Mistake: Interchanging the points in differences

  The 2025 examiners saw candidates swap the features of capital and revenue expenditure.

  ✓Do this: Remember 'keep vs run': capital = long benefit, Balance Sheet.

  Usually costs: Both marks.

• ✗Mistake: Classifying by amount

  Students think large = capital.

  ✓Do this: Classify by nature and period of benefit, not size.

  Usually costs: 1 mark per item.

Practice questions on Capital and Revenue

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

1. Q1 · 1 mark · MCQBoard level

   Sale of an old machine is a:
   (a) revenue receipt
   (b) capital receipt
   (c) revenue expenditure
   (d) capital expenditure

   Hint

   Reduces an asset.

   Answer

   (b) capital receipt.

2. Q2 · 1 mark · MCQBoard level

   Which of these is a revenue receipt?
   (a) Loan from a bank
   (b) Capital introduced
   (c) Discount received
   (d) Sale of land

   Hint

   Regular income.

   Answer

   (c) Discount received.

3. Q3 · 2 marks · Very short answerBoard level

   Write two differences between capital receipts and revenue receipts.

   Hint

   Liability/asset; recurring.

   Answer

   (1) Capital receipts create a liability or reduce an asset; revenue receipts do neither. (2) Capital receipts are non-recurring and shown in the Balance Sheet; revenue receipts are recurring and credited to the Trading or Profit and Loss Account.

4. Q4 · 2 marks · Very short answerBoard level

   Give two examples of deferred revenue expenditure.

   Hint

   Large, long benefit.

   Answer

   A heavy advertising campaign to launch a new product, and large research and development expenses on a new product (also shifting the business to a new site).

5. Q5 · 2 marks · Very short answerHarder board level

   Is the purchase of goods for resale capital expenditure because the amount is large? Explain.

   Hint

   Nature, not size.

   Answer

   No. Goods bought for resale are revenue expenditure whatever the amount, because they are part of normal trading and are used up within the year; classification depends on nature and period of benefit, not size.

6. Q6 · 2 marks · Short answerHarder board level

   Suppose a school spends ₹2,00,000 replacing all its old wooden benches with steel ones that will last 15 years, and ₹5,000 repainting the old benches the year before. Classify both, with reasons.

   Hint

   Replacement vs maintenance.

   Answer

   The steel benches are capital expenditure: new fixed assets giving benefit for many years. The repainting was revenue expenditure: it only maintained existing assets in usable condition.

7. Q7 · 5 marks · Long answerHarder board level

   Classify, with reasons: (a) interest received on investments; (b) wages paid for installing a new machine; (c) legal fees on purchase of land; (d) electricity bill of the office; (e) issue of shares.

   Hint

   Installation and legal fees join the asset.

   Answer

   (a) Revenue receipt: regular income. (b) Capital expenditure: part of the cost of the new machine. (c) Capital expenditure: part of the cost of the land. (d) Revenue expenditure: day-to-day running cost. (e) Capital receipt: creates share capital.

8. Q8 · 5 marks · Long answerHOTS / competency

   'Deferred revenue expenditure is revenue in nature but capital in effect.' Explain.

   Hint

   No asset, long benefit.

   Answer

   It is revenue in nature because no fixed asset is acquired: advertising or research is an expense, not a thing the firm owns. But its benefit lasts several years, like capital expenditure, so it is not charged fully to one year. It is written off over the years of benefit, and the balance not yet written off is shown as an asset in the Balance Sheet. For example, ₹6,00,000 spent on a launch campaign with a three-year benefit is charged at ₹2,00,000 a year.

9. Q9 · 2 marks · Very short answerHOTS / competency

   If revenue expenditure of ₹50,000 is wrongly treated as capital expenditure, what happens to the year's profit?

   Hint

   Not charged.

   Answer

   Profit is overstated by ₹50,000, because an expense that should reduce this year's profit is shown as an asset instead.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1. 1.Freight on a new machine: capital or revenue?Show answer

   Capital expenditure.

2. 2.Loan taken from a bank: which receipt?Show answer

   Capital receipt.

3. 3.Where is revenue expenditure shown?Show answer

   Trading or Profit and Loss Account.

4. 4.Give one example of deferred revenue expenditure.Show answer

   A heavy launch advertising campaign.

5. 5.Commission received: which receipt?Show answer

   Revenue receipt.

Quick revision checklist

The night before the exam: can you do each of these without looking?

• ☐Capital expenditure: fixed assets, long benefit, Balance Sheet.
• ☐Revenue expenditure: running costs, current year, Trading/P&L.
• ☐Capital receipts: loans, capital, sale of assets, shares.
• ☐Revenue receipts: sales, rent, commission, interest, discount received.
• ☐Deferred revenue expenditure: big revenue expense spread over years (launch ads, R&D).

Capital and Revenue: frequently asked questions