With reference to the expenditure made by an organization or a company, which of the following statements is/are correct?

  1. Acquiring new technology is capital expenditure
  2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure

Select the correct answer using the code given below:

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2

Explanation:

Capital and revenue expenditures are two types of expenses that businesses incur. Capital expenditures (CapEx) are funds used to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. On the other hand, revenue expenditures are short-term business expenses usually used immediately or within one year, including all the expenses required to meet the current operational costs of the business.

With reference to the given statements:

1. Acquiring new technology is capital expenditure: This statement is correct. Acquiring new technology falls under capital expenditure as it involves the purchase or upgrade of a fixed asset that will benefit the company for more than one year.

2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure: This statement is incorrect. Both debt financing and equity financing are considered as part of capital receipts for the company, as capital receipts create liabilities or reduce financial assets. Funds from these sources would be used by the company for capital expenditures, not revenue expenditures.

Based on the analysis, the correct answer is:

  1. 1 only

Related Posts

No posts found.
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments
X
Home Courses Plans Account