Capital or revenue expenditure?

clare222

Hi, I have a client who runs an interior design business. They have various fabric books (which contain swatches of fabric) which cost from £40 - £200 when new and although are economically useful for sales to the business have no real re-sale value. Would these be considered as capital or revenue expenses and if capital how would you go about depreciating them? Helpful and constructive comments please.

LearningAcademy

Hi

1) If the client expect the fabric books to be used over a period of years, then it would be worthwhile to book them as 'deferred revenue expenditure'. The concept is similar to capital expenditure, but unlike capital assets that you depreciate, you 'amortise' (write off) these books over a period of use.

2) The above is a theoretical solution. Practically, if there are not too many fabric books purchased during a year, it would make perfect sense to just treat them as revenue and write them off. Remember to apply the concept of 'Materiality' here.

This is of course an opinion and not a recommended solution!

Thanks