Prelims 2022 · Economy · Question 9
With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct?
- Acquiring new technology is capital expenditure.
- Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.
Select the correct answer using the code given below:
Answer
1 only
1. Acquiring new technology is capital expenditure. Capital expenditure creates or upgrades a long-term asset that gives benefits over multiple years; purchase/acquisition of technology or related rights is generally treated as capital expenditure. Verdict: Correct.
2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure. Debt and equity financing are sources of finance, not expenditure heads; they are not classified as capital vs revenue expenditure in this way. Verdict: Incorrect.
Hence, only statement 1 is correct.