What happens if Capital Expenditure is treated as Revenue Expenditure?
The Effects of Incorrect Treatment of Capital And Revenue Expenditure On The Financial Statements / Final Accounts It is very interesting question when someone asks that what happens if Capital Expenditure is treated as Revenue Expenditure . If you don’t know about these terms then kindly read the article about Difference Between Capital And Revenue Items . Obviously, it is a mistake and its effect is that the Users of Financial Statements can not get the complete and true and fair view of the financial statements of the company businesses. International Accounting Standards - IAS -1 requires fair Presentation of Financial Statements of company businesses. Let us come to the question. Okay! When we treated Capital Expenditure as revenue expenditure, then the Income Statement is understated in the current year but the net income shown in the Income Statement in the next accounting year will be overstated as we do not charge any Depreciation ...