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Q99 (IAS/2022) Economy › Basic Concepts & National Income › Capital vs revenue expenditure Official Key

With reference to the expenditure made by an organisation 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:

Result
Your answer: —  ·  Correct: A
Explanation

The correct answer is Option 1. Statement 1 is correct because capital expenditure (CapEx) refers to funds used by a company to acquire, upgrade, and maintain physical assets or intangible assets like technology. Since acquiring new technology provides long-term benefits beyond one financial year and enhances the productive capacity of the organization, it is classified as capital expenditure.

Statement 2 is incorrect because both debt and equity financing are methods of raising capital and pertain to the liability or equity side of the balance sheet, rather than the expenditure side. While the repayment of a loan principal is a capital outflow, the act of financing itself is not "expenditure" in the accounting sense.

  • Capital Expenditure: Creates assets or reduces liabilities (e.g., buying machinery).
  • Revenue Expenditure: Incurred for day-to-day operations (e.g., salaries, rent), providing no long-term asset creation.
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Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct? 1. Acquiring n…
At a glance
Origin: Books + Current Affairs Fairness: Low / Borderline fairness Books / CA: 3.3/10 · 6.7/10
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This question tests the fundamental accounting definition of 'Capital' vs 'Revenue'. Statement 1 is textbook static found in NCERT. Statement 2 is a logic trap: 'Financing' is a source (Receipt), not an Expenditure. If you know the Balance Sheet equation (Sources vs Applications), this is a sitter.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
In corporate accounting, is acquiring new technology (e.g., purchasing software, hardware, or technology systems) classified as capital expenditure or revenue expenditure?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > 2. Capital Expenditure > p. 108
Presence: 5/5
“Capital expenditure results in the acquisition of a tangible or intangible asset or payment of liabilities. Thus, it impacts the asset-liability status of the Government. Capital expenditures are focussed on GDP growth and thereby incurred on building durable assets like highways, multipurpose dams, irrigation projects, buying machinery and equipment. They are non-recurring type of expenditures also in the form of capital investments.”
Why this source?
  • Explicitly defines capital expenditure as resulting in acquisition of a tangible or intangible asset.
  • Links capital expenditure to changes in asset-liability status, which fits purchasing software/hardware.
  • Gives examples (machinery, equipment) that map to technology hardware and analogous treatment for intangibles.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.4 Budget Classification > p. 152
Presence: 4/5
“It also includes small savings schemes (Post office savings accounts, National Savings Certificates etc.), Provident Funds and net receipts obtained from the sale of shares in PSUs (disinvestment). Capital Expenditure: Those expenses of the government which either creates assets (physical or financial) or reduces liabilities are called capital expenditures. Capital expenditures include acquisition of land, building, machinery, equipment, purchase of shares by the government and loans and advances by the central government to state and union territory governments, PSUs and other parties.”
Why this source?
  • States capital expenditure creates physical or financial assets.
  • Specifically lists acquisition of machinery and equipment as capital spending, analogous to technology purchases.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > CHAPTER SUMMARY > p. 125
Presence: 4/5
“Revenue Expenditure - regular expenses - expenditures incurred on civil administration, defence forces, public health and education, maintenance of Government machinery, etc. does not impact the asset-liability status - high-revenue expenditure indicates poverty and backwardness of the economy. • Capital Expenditure: one-time expenses, acquisition of a tangible or intangible asset, or payment of liabilities - impacts asset-liability status - improves the productive capacity of the economy - high capital expenditure indicates lack of private investment in the economy”
Why this source?
  • Describes capital expenditure as one-time expense for acquisition of tangible or intangible assets.
  • Notes capital expenditure improves productive capacity, consistent with investing in technology systems.
Statement analysis

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Statement analysis

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