When a club buys equipment, the payment is capital expenditure: the cost goes into the statement of financial position as a non-current asset. Only the depreciation of that asset reaches the income and expenditure account. Day-to-day costs such as repairs are revenue expenditure.
This idea links clubs and societies accounts with capital and revenue treatment and depreciation.
How do you decide capital or revenue?
Ask: does this payment buy something the club will use for more than one year, or improve it? If yes, it is capital. If it keeps the asset working or is used up in the year, it is revenue.
New tables, a scoreboard and a sound system are capital. Mending a net, hiring a hall and buying shuttlecocks are revenue. Some items sit near the line, so follow the information in the question.
How do you treat the purchase step by step?
- Record the payment in the receipts and payments account if one is given. Cash left the club.
- Keep it out of the income and expenditure account. It is not expenditure.
- Add it to the asset at cost in the statement of financial position.
- Calculate depreciation using the stated rate and method.
- Charge depreciation in the income and expenditure account and add it to accumulated depreciation.
- Show the carrying amount as cost minus accumulated depreciation.
Worked example
Harbour Table Tennis Club had equipment which cost RM4,000 with accumulated depreciation of RM1,600 at 1 January 2025. On 1 January 2025 it paid cash of RM3,000 for new tables. Depreciation is 20% per year on cost, on all equipment held at the year end, with a full year charged in the year of purchase.
Step 1, new cost: 4,000 + 3,000 = 7,000.
Step 2, depreciation: 20% × 7,000 = 1,400.
Step 3, accumulated depreciation: 1,600 + 1,400 = 3,000.
Step 4, carrying amount: 7,000 − 3,000 = 4,000.
| Statement of financial position (extract) | RM |
|---|---|
| Equipment at cost | 7,000 |
| Less accumulated depreciation | (3,000) |
| Carrying amount | 4,000 |
Check: the opening carrying amount was 4,000 − 1,600 = 2,400. Add the purchase of 3,000 and take off depreciation of 1,400. That is 2,400 + 3,000 − 1,400 = 4,000, which agrees.
The income and expenditure account carries only the 1,400 depreciation, not the RM3,000 payment.
The mistake to watch for
A common slip is to charge the whole purchase price as an expense because the money has left the club.
Mistaken answer: Expenditure of RM3,000 for tables in the income and expenditure account, with no asset recorded.
The depreciation on the tables should be 20% × 3,000 = 600. Charging the full 3,000 makes the surplus RM2,400 too low, and the club’s assets are understated.
The correction is to put the cost in the statement of financial position and charge only the depreciation. Ask yourself whether the club will still have the tables at the end of the year. If it will, it still has an asset.
Check yourself
Try these, then open each answer.
1. Classify each item as capital or revenue: (a) mending a net, RM80; (b) a new scoreboard, RM1,200; (c) painting the hall hired for events; (d) building a new changing room, RM5,000.
Show answer
(a) revenue, (b) capital, (c) revenue, (d) capital.
2. A club buys equipment for RM2,500 on 1 January. It depreciates 10% per year on cost. Find the carrying amount at the end of year 1.
Show answer
Depreciation: 10% × 2,500 = 250. Carrying amount: 2,500 − 250 = RM2,250.
3. A club buys a sound system for RM1,800 on 1 January 2025, depreciating at 25% per year on cost. Find the depreciation each year and the carrying amount after two years.
Show answer
Each year: 25% × 1,800 = RM450. After two years: accumulated depreciation of 900, so the carrying amount is 1,800 − 900 = RM900.
Where this leads next
Finish the module with reconciling the accumulated fund, where the depreciation charge feeds into the surplus. The percentage-base explorer helps with the 20% and 25% calculations, and the ledger trainer lets you post the purchase.
Some students apply the capital and revenue test correctly in isolation but slip when several items are mixed in a longer question. A teacher can help build that routine in online one-to-one Accounting tuition.