With reference to the expenditure made by an organisation or a company, which of the j following statements is/are correct ? 1. Acquiring new technology is capital expenditure. 2. Debt financing is considered capital expenditure, while equity financing is

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Q: 9 (IAS/2022)
With reference to the expenditure made by an organisation or a company, which of the j 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 :

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,317,114,317,17,94,3

keywords: 

{'capital expenditure': [0, 0, 0, 1], 'revenue expenditure': [0, 1, 0, 4], 'expenditure': [2, 0, 2, 4], 'equity financing': [0, 0, 0, 1], 'debt financing': [0, 0, 0, 2]}

The statement 1 is correct, while the statement 2 is incorrect.

Acquiring new technology is considered as capital expenditure because it leads to the acquisition of an asset that can generate benefits over a long period of time. On the other hand, revenue expenditure refers to the expenditure incurred on the day-to-day operations of a business, such as salaries, rent, and utilities.

Debt financing and equity financing are both methods of raising capital for a business, but they do not determine whether an expenditure is capital or revenue. The nature of the expenditure itself determines whether it is capital or revenue, based on whether it leads to the acquisition of a long-term asset or not.


Preparing for Future Exams: Learning from the Analysis of Past Questions

Topics:

  • Types of expenditure (capital and revenue)
  • Capital Expenditure
  • Revenue Expenditure
  • Debt financing and Equity financing
  • Technology acquisition

Sources:

  • NCERT Accountancy textbooks (Class XI and XII)

Related Concepts:

  • Accounting principles and concepts
  • Accounting equation
  • Double-entry system
  • Depreciation, Provisions, and Reserves
  • Accounting for Not-for-Profit organizations
  • Accounting for Partnership firms