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Answer to Question #20968 in Finance for rakesh

Question #20968
• When can Revenue Expenditure be capitalised?
Expert's answer
Revenue Expenditure is the cost of resources consumed or used up in the process of generating revenue, generally referred to
as expenses. Only those costs that are directly at tribute able to the acquisition(creation)of assets refer to the capitalization.Those that are produced after these of these assets should be treated in the profit and loss account as period costs.Capitalization is required for all expenditure on development of oil - and gas-bearing province, if at least some wells produce much income that it is sufficient to cover these costs. Also revenue expenditure can be capitalized when the company make advertisements of their products and services, but as a result of such expenditure a brand, which value can be measured in the billions of dollars,is formed. Admittedly the business community, the brand is an intangible asset and one of the main competitive advantages of the company.However, its cost estimates and their trends overtime do not fit into the traditional rules of recording intangible assets. Thus, intangible assets are depreciable, i.e. transfer of their value to the cost of the newly created product / service is made with parts through depreciation. After expiration of the intangible asset use its value is nullified. Brand can either not only to lose its value over time, but also to increase it. Representing an intangible asset at all these previously mentioned features,the brand needs a special procedure for assessment and reassessment. Only in this case capitalization of expenditure will be possible, resulting in increase of the value of fixed assets due to the reflection of them in brand composition.


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