Which Type Of Expenditure Is Made In Bridge Construction?

Which Type Of Expenditure Is Made In Bridge Construction
Solution – Expenditure incurred on building a bridge is considered a capital expenditure because this expenditure creates an asset and reduces the liabilities of the government. Concept: Classification of Expenditure Is there an error in this question or solution? Advertisement Remove all ads 2013-2014 (March) Foreign Set 2 Q 26 Q 25 Q 27

Which type of expenditure is made?

Types of expenditures. Expenditures are divided into two broad categories: capital expenditures and revenue expenditures. Organizations use expenditures—both capital and revenue expenditures—to establish itself, start operations or expand its business.

Which of the following is capital expenditure?

Capital expenditure consists of expenditure on acquisition of assets like land, buildings, investment in shares, etc.

What is capital expenditure with example?

Key Takeaways –

A capital expenditure (CapEx) is the money companies use to purchase, upgrade, or extend the life of an asset.Capital expenditures are long-term investments, meaning the assets purchased have a useful life of one year or more.Types of capital expenditures can include purchases of property, equipment, land, computers, furniture, and software.CapEx can be a one-time expenditure (i.e. buying land) or accumulated over time as part of a project (i.e. developing a building on that land).In accordance with GAAP, CapEx must be capitalized on a company’s balance sheet and recognized as an expense over the life of the asset.

What is capital expenditure of the government?

What is Capital Expenditure, Capital Expenditure Meaning, Budget News, Capital Expenditure Types Capital expenditure is the money spent by the government on the development of machinery, equipment, building, health facilities, education, etc. It also includes the expenditure incurred on acquiring fixed assets like land and investment by the government that gives profits or dividend in future.

  • The Budget estimate of the government’s capital expenditure for the year 2020-21 was Rs 1,084,748 crore.
  • The revised estimates of capital expenditure for the 2019-20 Budget came at Rs 1,059,472 crore, while the actuals for the 2018-19 Budget stood at Rs 915,670 crore.
  • Understanding capital expenditure Capital spending is associated with investment or development spending, where expenditure has benefits extending years into the future.

Capital expenditure includes money spent on the following:

Acquiring fixed and intangible assets Upgrading an existing asset Repairing an existing asset Repayment of loan

Why is capital expenditure important? Capital expenditure, which leads to the creation of assets are long-term in nature and allow the economy to generate revenue for many years by adding or improving production facilities and boosting operational efficiency.

It also increases labour participation, takes stock of the economy and raises its capacity to produce more in future. Along with the creation of assets, repayment of loan is also capital expenditure, as it reduces liability. However, the government has to be cautious with the expenditure. In the financial year 2019-20, capital expenditure was 14.2 per cent of Budget Estimates.

The government had to cut public spending sharply towards the end of the financial year in order that the deficit target could be met. Total expenditure fell by 0.3 percentage points in 2018-19 over 2017-18. This includes a 0.4 percentage point slash in revenue expenditure and 0.1 percentage point hike in capital expenditure.

  • How is capital expenditure different from revenue expenditure? Unlike capital expenditure, which creates assets for the future, revenue expenditure is one that neither creates assets nor reduces any liability of the government.
  • Salaries of employees, interest payment on past debt, subsidies, pension, etc, fall under the category of revenue expenditure.

It is recurring in nature. : What is Capital Expenditure, Capital Expenditure Meaning, Budget News, Capital Expenditure Types

What are the 4 expenditures?

Consumption, investment, government, and net exports make up the four types of expenditures.

Which one is capital expenditure Mcq?

Explanation: Capital expenditure or capital expense is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. Wages paid on the installation of machinery is treated as a capital expenditure.

Which is not a capital expenditure?

When companies make a revenue expenditure, the expense provides immediate benefits, rather than long term ones. Examples of revenue expenditure are wages or salaries paid to factory workers, machine Oil to lubricate. Hence option B is not the capital expenditure.

Is rent a capital expenditure?

Key Takeaways –

Capital expenditures are a company’s major, long-term expenses while operating expenses are a company’s day-to-day expenses.Examples of CapEx include physical assets, such as buildings, equipment, machinery, and vehicles. Examples of OpEx include employee salaries, rent, utilities, and property taxes.Items covered by OpEx often have a useful life of one year or less, while CapEx tends to pay for a benefit to the company for longer than one year.Capital expenditures cannot be deducted from income for tax purposes, but operating expenses are eligible.

What is an example of current expenditure?

OECD Glossary of Statistical Terms – Current expenditure (on education) Definition

Definition:
Current expenditure is expenditure on goods and services consumed within the current year, which needs to be made recurrently to sustain the production of educational services. Minor expenditure on items of equipment, below a certain cost threshold, is also reported as current spending. Current expenditure includes final consumption expenditure, property income paid, subsidies and other current transfers (e.g., social security, social assistance, pensions and other welfare benefits).

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Source Publication:
Education at a Glance, OECD, Paris, 2002, Glossary.

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Statistical Theme: Education and training statistics

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Created on Thursday, February 13, 2003

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Last updated on Monday, March 3, 2003

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OECD Glossary of Statistical Terms – Current expenditure (on education) Definition

What are expenditures examples?

Expenditure – This is the total purchase price of a good or service. For example, a company buys a $10 million piece of equipment that it estimates to have a useful life of 5 years. This would be classified as a $10 million capital expenditure.

What is total expenditure example?

What is Total Expenditure? Total expenditure is an economic term used to describe the total amount of money that is spent on a product in a given time period. This amount is achieved by multiplying the quantity of the product purchased by the price at which it was purchased.

The way that total expenditure changes over time is dependent upon price changes in that time period. How much the price change affects the expenditure amount is closely related to how the demand for the product might be. Economists are constantly looking for ways to measure the relationship between price levels of a certain product and the corresponding behavior of consumers toward that product.

It is not as simple as lowering the price of a product to create more purchases of that product. Demand levels also are an important factor in determining at what price level the greatest response to the product will occur. The total expenditure spent on a given product is always tied into the price and demand levels.

  • To calculate the total expenditure of a certain product at a given time, the quantity of the product sold and the price for which it was sold first need to be known.
  • For example, imagine that a company sells cars and decides upon a price of $20,000 US Dollars (USD) for a single car.
  • In a given amount of time, the company sells 200 cars at that price.

Using this case, the expenditure total would be 20 multiplied by $20,000 USD, which comes to $400,000 USD. Of course, the amount of cars sold was not only determined by the price level at that specific time. It is important when considering total expenditure to also consider the amount of demand for that car or any other product and how that affects the amount sold.

Economists take a close look at the elasticity of demand when considering expenditure. Elasticity of demand is a measurement of how flexible the demand level might be for a certain product. In the case of total expenditure, there are three possible results that can occur from differing levels of demand elasticity.

If the demand for a product is relatively elastic, the expenditure levels will move in the opposite direction of any price movement. At relatively inelastic levels, the expenditure should move in the same direction as any price changes. Finally, when the demand is at a baseline level known as unit elastic, any change in price will have no effect whatsoever on the amount of expenditure for the product.

What are 5 government expenditures?

Federal government spending pays for everything from Social Security and Medicare to military equipment, highway maintenance, building construction, research, and education. This spending can be broken down into two primary categories: mandatory and discretionary.

What are the top 3 government expenditures?

Components of federal government spending – CBO: U.S. Federal spending and revenue components for fiscal year 2021. Major expenditure categories are healthcare, Social Security, and defense; income and payroll taxes are the primary revenue sources. For most governments around the world, the majority of government spending takes place at the federal/national level.

What is classification of expenditure?

Classification of Expenditure – Types of Expenditure Expenditure is referred to as the act of spending time, energy or money on something. In economics, it means money spent on purchasing any goods or services. There are two categories of expenditures which are:

  1. Revenue Expenditures
  2. Capital Expenditures

How many types of expenditure is there?

2. What are the major types of expenditure? – There are three main types of expenditures: revenue, capital & deferred revenue. Revenue expenditures are usually recurring expenses received during the accounting year, while capital expenditures are one-time costs that the business expects to spread over multiple years.

What are the two types of expenditure in business?

What are the different types of expenses? – There are three major types of business expenses:

  1. Operating expenses
  2. Non-operating expenses
  3. Capital expenses

Let’s look at each one of them in detail.

What is direct and indirect expenditure?

Direct expenses are those that are linked to a specific cost object, while indirect expenses are associated with the entire business and not specific cost objects.

What is a fixed expenditure?

Fixed expenditure – Fixed expenditure is that which you have to spend, regardless of how many people come to the event. For items such as programmes, you still need to order these before you know the numbers who will be attending, so it is still considered as fixed expenditure.

Which type of expenditure is done for making assets Mcq?

Capital Expenditures – There are the expenditures of the government that result in the creation of physical or financial assets, or depletion in financial liabilities. This incorporates expenditure on the investment of building, land, equipment, machinery, investment in shares, and loans and advances by the central government to state and union territory governments, Public Sector Undertakings (PSUs), and other parties.

  1. Capital expenditure is also classified as plan and non-plan in the budget documents.
  2. A plan capital expenditure, like its revenue equivalent, is associated with central plan and central assistance for state and union territory plans.
  3. A non-plan capital expenditure covers different general, social, and economic services furnished by the government.

The Medium-term Fiscal Policy Statement sets a 3-year rolling target for specific fiscal indicators and examines whether revenue expenditure can be financed through revenue receipts on a sustainable basis and how productively capital receipts market borrowings are being consumed.

Q.1 Distinguish between revenue expenditure and capital expenditure.
Answer:
Parameters Revenue Expenditure Capital Expenditure
Meaning Revenue expenditure refers to the expenditure that neither creates assets nor reduces the liability of the government. Capital expenditure refers to the expenditure that either creates an asset or reduces the liability of the government.
Nature They are regular and recurring. They are irregular and non-recurring.
Term Short-term Long-term
Example Payment of salaries, maintenance of roads, street lights, etc. Repayment of loans, purchase of machinery, etc.

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Q.2 Giving reasons identify the following as revenue expenditure or capital expenditure.:

  • (a) Salary paid to army officers
  • (b) Loan given to union territories
  • (c) Pension paid to retired government employees
  • (d) Interest paid on national debt
  • (e) Repayment of loan taken from the World Bank
Answer: (a) Salary paid to army officers Revenue expenditure Reason: It neither creates any asset nor reduces the liability of the government. (b) Loan given to union territories Capital expenditure Reason: It increases the assets of the government. (c) Pension paid to retired government employees Revenue expenditure Reason: It neither creates an asset nor reduces the liability of the government. (d) Interest paid on national debt Revenue expenditure Reason: It neither creates an asset nor reduces the liability of the government. (e) Repayment of loan taken from the World Bank Capital expenditure Reason: It reduces the liability of the government.

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1 mark questions Q.1. What is meant by capital expenditure? Answer: Capital expenditure refers to the expenditure that either creates an asset or reduces the liability of the government. Q.2. Give two examples of capital expenditure in a government budget. Answer: Construction of metros and dams, and repayment of loans to IMF Q.3. Define revenue expenditure. Answer: Revenue expenditure refers to the expenditure that neither creates an asset nor reduces the liability of the government. Q.4. Give two examples of revenue expenditure in a government budget. Answer: Payment of salaries by the government, and maintenance of street lights and roads

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Receipts Expenditure Revenue receipts Capital receipts Revenue expenditure Capital expenditure Creates liability No E.g., Income tax Yes E.g., Borrowings Reduces liability No E.g., Payment of salaries Yes E.g., Repayment of loans Reduces assets No E.g., Sales tax Yes E.g., Disinvestment Creates assets No E.g., Payment of pension Yes E.g., Purchase of machinery

The above mentioned is the concept that is explained in detail about Classification of Expenditure for the class 12 students. To know more, stay tuned to BYJU’S.

What are the two types of expenditures?

Types of Expenditures in Accounting – Expenditures in accounting comprise two broad categories: capital expenditures and revenue expenditures.

What is called expenditure?

In a trip budget, you need to add up all your expenditures, such as hotel, car rental and food costs against the money you have brought to spend. An expenditure is money spent on something. Expenditure is often used when people are talking about budgets.

noun the act of spending money for goods or services noun the act of consuming something noun money paid out; an amount spent synonyms: expense, outgo, outlay, spending see more see less Antonyms: income the financial gain (earned or unearned) accruing over a given period of time types: show 24 types. hide 24 types. cost the total spent for goods or services including money and time and labor expense money spent to perform work and usually reimbursed by an employer transfer payment a public expenditure (as for unemployment compensation or veteran’s benefits) that is not for goods and services disbursal, disbursement, expense amounts paid for goods and services that may be currently tax deductible (as opposed to capital expenditures) capital expenditure the cost of long-term improvements payment a sum of money paid or a claim discharged ransom, ransom money money demanded for the return of a captured person cost overrun excess of cost over budget cost of living average cost of basic necessities of life (as food and shelter and clothing) borrowing cost the cost of borrowing something distribution cost any cost incurred by a producer or wholesaler or retailer or distributor (as for advertising and shipping etc) handling charge, handling cost the cost of handling (especially the cost of packaging and mailing an order) marketing cost the cost of marketing (e.g., the cost of transferring title and moving goods to the customer) production cost combined costs of raw material and labor incurred in producing goods replacement cost current cost of replacing a fixed asset with a new one of equal effectiveness physical value, reproduction cost cost of reproducing physical property minus various allowances (especially depreciation) unit cost calculated cost for a given unit of a product damage, price, terms the amount of money needed to purchase something price cost of bribing someone opportunity cost cost in terms of foregoing alternatives portage the cost of carrying or transporting incidental, incidental expense, minor expense (frequently plural) an expense not budgeted or not specified travel expense (frequently plural) expenses incurred by an employee in the performance of the job and usually reimbursed by the employer charge the price charged for some article or service type of: transferred possession, transferred property a possession whose ownership changes or lapses

Which one is revenue expenditure Mcq?

Types of Expenditure MCQ – Objective Question Answer for Types of Expenditure Quiz – Download Now! Which one of the following statements is not true ?

  1. An expenditure intended to benefit current year is revenue expenditure.
  2. Amount paid for acquiring goodwill is capital expenditure.
  3. Wages paid for installation of a new machine is usually debited to wages account.
  4. Revenue expenditure is not intended to benefit future period.
  5. All the statements are true

Option 3 : Wages paid for installation of a new machine is usually debited to wages account.

  • The incorrect answer is Option 3
  • Key Points
  • An expenditure intended to benefit the current year is revenue expenditure- True
  • Revenue expenditure is not intended to benefit future period- True.
  • Explanation:
  • Revenue Expenditure :
  1. Revenue expenditures are short-term expenses used in the current period or typically within one year.
  2. Revenue expenditures include the expenses required to meet the ongoing operational costs of running a business, and thus are essentially the same as operating expenses.
  3. They are intended to benefit the current year and not in the future years,

Amount paid for acquiring goodwill is capital expenditure- True Explanation:

  1. Goodwill is an intangible asset, but also a capital asset.
  2. Goodwill is classified as a capital asset because it provides an ongoing revenue generation benefit for a period that extends beyond one year,
  3. Capital assets are any assets that are not regularly sold as part of a company’s ordinary business operations but owned because of their ability to help the company generate profit.

Wages paid for the installation of a new machine is usually debited to wages account- False. Explanation:

  1. Capital expenditure or capital expense is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land.
  2. Wages paid on the installation of machinery is treated as a capital expenditure, The journal entry for the same is

Machinery A/C,Dr To Cash/Bank A/C. Therefore, Option 3 is the right answer. India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.4 Crore+ Students Which of the following is the type of expenditure incurred above heavy advertisement which will bring benefits for the next many years?

  1. Revenue Expenditure
  2. Capital Expenditure
  3. Deferred Revenue Expenditure
  4. Prepaid Expenditure

Option 3 : Deferred Revenue Expenditure The correct answer is Deferred Revenue Expenditure. Key Points

  • Deferred revenue expenditure refers to those expenses which are incurred during one accounting year but benefits from the same are available wholly or in part in future periods also.
  • Example: heavy expenditure on an advertisement, expenditure incurred on research and development, etc.

Additional Information

  • Capital Expenditure: It refers to that expenditure that is incurred for acquiring fixed assets or assets which increase the earning capacity of the business. The benefits of capital expenditure extend to the number of years. Examples: Expenditure incurred for acquiring a fixed asset such as building, plant, and machinery, etc.
  • Revenue expenditure: It refers to that expenditure which is incurred in the course of normal business transactions of a concern and its benefits are availed of during the same accounting year. Examples: Salaries, carriage, etc.
  • Prepaid expenses are future expenses that are paid in advance. On the balance sheet, prepaid expenses are first recorded as an asset. After the benefits of the assets are realized over time, the amount is then recorded as an expense.

India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.4 Crore+ Students What is the insurance expense paid for the equipment being brought from the place of purchase to the place of replacement?

  1. Revenue expenditure
  2. Capital expenditure
  3. Deferred revenue expenditure
  4. Operational expenditure

Option 2 : Capital expenditure An insurance premium paid to bring the equipment from the place of purchase to the place of installation is a capital expenditure.

  • Capital expenditures refer to funds that are used by a company for the purchase, improvement, or maintenance of long-term assets to improve the efficiency or capacity of the company.
  • Long-term assets are usually physical, fixed, and non-consumable assets such as property, equipment, or infrastructure, and that have a useful life of more than one accounting period.
  • Also known as CapEx or capital expenses, capital expenditures include the purchase of items such as new equipment, machinery, land, plant, buildings or warehouses, furniture and fixtures, business vehicles, software, or intangible assets such as a patent or license.
  • Capital expenditures (CAPEX) are a company’s major, long-term expenses that are not incurred on a day-to-day basis.
  • An insurance premium paid to bring the equipment from the place of purchase to the place of installation is a capital expenditure as it is not a recurring expense and has to be paid probably only once unlike a life insurance premium which has to be paid after every regular interval till policy exists.

Thus, option 2 is the correct answer.

  • All the expenditures which are incurred in the day-to-day conduct and administration of a business and the effect of which is completely exhausted within the current accounting year are known as “revenue expenditures”,
  • Revenue expenditures are short-term expenses used in the current period or typically within one year.
  • Revenue expenditures include the expenses required to meet the ongoing operational costs of running a business, and thus are essentially the same as operating expenses (OPEX).
  • Deferred Revenue Expenditure is an expenditure that is revenue in nature and incurred during an accounting period, however, related benefits are to be derived in multiple future accounting periods.

India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.4 Crore+ Students Which one of the following statements is not true ?

  1. An expenditure intended to benefit current year is revenue expenditure.
  2. Amount paid for acquiring goodwill is capital expenditure.
  3. Wages paid for installation of a new machine is usually debited to wages account.
  4. Revenue expenditure is not intended to benefit future period.

Option 3 : Wages paid for installation of a new machine is usually debited to wages account.

  1. An expenditure intended to benefit the current year is revenue expenditure- True
  2. Revenue expenditure is not intended to benefit future period- True.
  3. Explanation:
  4. Revenue Expenditure :
  1. Revenue expenditures are short-term expenses used in the current period or typically within one year.
  2. Revenue expenditures include the expenses required to meet the ongoing operational costs of running a business, and thus are essentially the same as operating expenses.
  3. They are intended to benefit the current year and not in the future years,

Amount paid for acquiring goodwill is capital expenditure- True Explanation:

  1. Goodwill is an intangible asset, but also a capital asset.
  2. Goodwill is classified as a capital asset because it provides an ongoing revenue generation benefit for a period that extends beyond one year,
  3. Capital assets are any assets that are not regularly sold as part of a company’s ordinary business operations but owned because of their ability to help the company generate profit.

Wages paid for the installation of a new machine is usually debited to wages account- False. Explanation:

  1. Capital expenditure or capital expense is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land.
  2. Wages paid on the installation of machinery is treated as a capital expenditure, The journal entry for the same is

Machinery A/C,Dr To Cash/Bank A/C. Therefore, Option 3 is the right answer. India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.4 Crore+ Students If Rs.15,000 is spent on the repair of a secondhand machinery and Rs.2,500 on freight in connection with its acquisition, what is the amount of capital expenditure ?

  1. Rs.15,000
  2. Rs.17,500
  3. Rs.12,500
  4. Rs.2,500

Capital Expenditures:

  • Capital expenditures refer to funds that are used by a company for the purchase, improvement, or maintenance of long-term assets to improve the efficiency or capacity of the company.
  • Long-term assets are usually physical, fixed, and non-consumable assets such as property, equipment, or infrastructure, and that have a useful life of more than one accounting period.
  1. When a second-hand asset is purchased, expenditure incurred to bring the asset into working order is treated as capital expenditure,
  2. In the given case, second-hand machinery is purchased and a sum of money is spent upon overhauling/repairing and acquiring it. The expenditure on acquisition and overhauling will be considered as capital expenditure.
  3. Similarly, if new machinery is purchased and installed, the expenditure up to the point the machinery is ready to work will be capital expenditure, but expenditure, after it is ready to work, will not be treated as capital.

Therefore, Total amount of Capital expenditure= Rs.15,000 (repair of a secondhand machinery) + Rs.2,500 (freight charges)= Rs.17,500. India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.4 Crore+ Students If Rs.15,000 is spent on the repair of a secondhand machinery and Rs.2,500 on freight in connection with its acquisition, what is the amount of capital expenditure ?

  1. Rs.15,000
  2. Rs.17,500
  3. Rs.12,500
  4. Rs.2,500

Capital Expenditures:

  • Capital expenditures refer to funds that are used by a company for the purchase, improvement, or maintenance of long-term assets to improve the efficiency or capacity of the company.
  • Long-term assets are usually physical, fixed, and non-consumable assets such as property, equipment, or infrastructure, and that have a useful life of more than one accounting period.
  1. When a second-hand asset is purchased, expenditure incurred to bring the asset into working order is treated as capital expenditure,
  2. In the given case, second-hand machinery is purchased and a sum of money is spent upon overhauling/repairing and acquiring it. The expenditure on acquisition and overhauling will be considered as capital expenditure.
  3. Similarly, if new machinery is purchased and installed, the expenditure up to the point the machinery is ready to work will be capital expenditure, but expenditure, after it is ready to work, will not be treated as capital.

Therefore, Total amount of Capital expenditure= Rs.15,000 (repair of a secondhand machinery) + Rs.2,500 (freight charges)= Rs.17,500. India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.4 Crore+ Students Mark out which is not a capital expenditure.

  1. Cost of issuing shares and debenture
  2. Wages paid for construction of a new office
  3. Purchase of a new spark plug for Rs.9.75
  4. Repair on a secondhand vehicle newly purchased

Option 3 : Purchase of a new spark plug for Rs.9.75 Capital Expenditures:

  • Capital expenditures refer to funds that are used by a company for the purchase, improvement, or maintenance of long-term assets to improve the efficiency or capacity of the company.
  • Long-term assets are usually physical, fixed, and non-consumable assets such as property, equipment, or infrastructure, and that have a useful life of more than one accounting period.

The following are the list of Capital expenditure:

  1. Cost of issuing shares and debentures and raising loans, such as legal expenses, underwriting commissions, etc.
  2. Wages paid for the construction of a new office should be treated as a Capital Expenditure because it will benefit the business for more than one accounting period.
  3. Repair on a secondhand vehicle newly purchased is a Capital expenditure as it increases the earning capacity of an existing fixed asset.

Key Points Expenses can be defined as revenue expenditure and capital expenditure, Revenue expenditure is those which are incurred during the day to day business activity for the smooth running of the operation. Capital expenditure is those which enhance the life of the asset and the benefits by incurring these expenditure arises in the coming years ahead.

  1. An expenditure intended to benefit current year is revenue expenditure.
  2. Amount paid for acquiring goodwill is capital expenditure.
  3. Wages paid for installation of a new machine is usually debited to wages account.
  4. Revenue expenditure is not intended to benefit future period.

Option 3 : Wages paid for installation of a new machine is usually debited to wages account.

  • An expenditure intended to benefit the current year is revenue expenditure- True
  • Revenue expenditure is not intended to benefit future period- True.
  • Explanation:
  • Revenue Expenditure :
  1. Revenue expenditures are short-term expenses used in the current period or typically within one year.
  2. Revenue expenditures include the expenses required to meet the ongoing operational costs of running a business, and thus are essentially the same as operating expenses.
  3. They are intended to benefit the current year and not in the future years,

Amount paid for acquiring goodwill is capital expenditure- True Explanation:

  1. Goodwill is an intangible asset, but also a capital asset.
  2. Goodwill is classified as a capital asset because it provides an ongoing revenue generation benefit for a period that extends beyond one year,
  3. Capital assets are any assets that are not regularly sold as part of a company’s ordinary business operations but owned because of their ability to help the company generate profit.

Wages paid for the installation of a new machine is usually debited to wages account- False. Explanation:

  1. Capital expenditure or capital expense is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land.
  2. Wages paid on the installation of machinery is treated as a capital expenditure, The journal entry for the same is

Machinery A/C,Dr To Cash/Bank A/C. Therefore, Option 3 is the right answer. India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.4 Crore+ Students Heavy initial expenditure on advertising the launch of a new product should be classified as

  1. Capital expenditure
  2. Revenue expenditure
  3. A loss
  4. Deferred revenue expenditure

Option 4 : Deferred revenue expenditure An expenditure represents a payment with either cash or credit to purchase goods or services. There are three types of expenditure: Capital Expenditure, Revenue Expenditure and Deferred Revenue Expenditure. Deferred Revenue Expenditure

  • Deferred revenue expenditure is an expenditure which is incurred in the present accounting period but its benefits are incurred in the following or the future accounting periods. This expenditure might be written off in the same financial year or over a period of a few years.
  • The benefit of such expenditure generally lasts between 3 to 7 years.
  • The whole expenditure is not debited to the Profit and Loss Account of the current year but spread over the years for which the benefit is likely to last, only a part of such expenditure is taken to the Profit & Loss Account every year and the unwritten off portion is allowed to stand on the assets side of the Balance Sheet.
  • For Example, Amount spent of Rs.5,00,000 on advertising to introduce a new product in the market and it is estimated that the benefit will last for 5 years, then Rs.1,00,000 will be charged every year to the profit & loss account and balance amount shown on the Assets side of the Balance Sheet.

The heavy initial expenditure on advertising the launch of a new product should be classified as Deferred Revenue Expenditure.

Particulars Capital Expenditure Revenue Expenditure
Nature Capital Expenditure is incurred for the acquisition or erection of a fixed asset. Revenue Expenditure is incurred for the day to day running of the business.
Capacity Capital Expenditure is incurred for the purpose of increasing the earning capacity of the business. Revenue Expenditure is incurred for maintenance of earning capacity i.e. for keeping the assets in efficient working order.
Benefit Capital Expenditure yields benefit normally over a long period. Revenue Expenditure yields benefit for a maximum period of one year.
Deprecation Deprecation will be charged on Capital Expenditure every year. There is no Deprecation will be charged on Revenue Expenditure.
Profit & Loss Capital Expenditure is not written in Trading or Profit & Loss Account. Revenue Expenditure is written in Trading or Profit and Loss Account.
Balance Sheet Capital Expenditure is written in the Balance Sheet under Fixed Assets. Revenue Expenditure is not written in the Balance Sheet, these effected profit & loss accounts.

India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.4 Crore+ Students If Rs.15,000 is spent on the repair of a secondhand machinery and Rs.2,500 on freight in connection with its acquisition, what is the amount of capital expenditure ?

  1. Rs.15,000
  2. Rs.17,500
  3. Rs.12,500
  4. Rs.2,500

Capital Expenditures:

  • Capital expenditures refer to funds that are used by a company for the purchase, improvement, or maintenance of long-term assets to improve the efficiency or capacity of the company.
  • Long-term assets are usually physical, fixed, and non-consumable assets such as property, equipment, or infrastructure, and that have a useful life of more than one accounting period.

  1. When a second-hand asset is purchased, expenditure incurred to bring the asset into working order is treated as capital expenditure,
  2. In the given case, second-hand machinery is purchased and a sum of money is spent upon overhauling/repairing and acquiring it. The expenditure on acquisition and overhauling will be considered as capital expenditure.
  3. Similarly, if new machinery is purchased and installed, the expenditure up to the point the machinery is ready to work will be capital expenditure, but expenditure, after it is ready to work, will not be treated as capital.

Therefore, Total amount of Capital expenditure= Rs.15,000 (repair of a secondhand machinery) + Rs.2,500 (freight charges)= Rs.17,500. India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.4 Crore+ Students Mark out which is not a capital expenditure.

  1. Cost of issuing shares and debenture
  2. Wages paid for construction of a new office
  3. Purchase of a new spark plug for Rs.9.75
  4. Repair on a secondhand vehicle newly purchased

Option 3 : Purchase of a new spark plug for Rs.9.75 Capital Expenditures:

  • Capital expenditures refer to funds that are used by a company for the purchase, improvement, or maintenance of long-term assets to improve the efficiency or capacity of the company.
  • Long-term assets are usually physical, fixed, and non-consumable assets such as property, equipment, or infrastructure, and that have a useful life of more than one accounting period.

The following are the list of Capital expenditure:

  1. Cost of issuing shares and debentures and raising loans, such as legal expenses, underwriting commissions, etc.
  2. Wages paid for the construction of a new office should be treated as a Capital Expenditure because it will benefit the business for more than one accounting period.
  3. Repair on a secondhand vehicle newly purchased is a Capital expenditure as it increases the earning capacity of an existing fixed asset.

Key Points Expenses can be defined as revenue expenditure and capital expenditure, Revenue expenditure is those which are incurred during the day to day business activity for the smooth running of the operation. Capital expenditure is those which enhance the life of the asset and the benefits by incurring these expenditure arises in the coming years ahead.

  1. Revenue expenditure
  2. Capital expenditure
  3. Deferred revenue expenditure
  4. Operational expenditure

Option 2 : Capital expenditure An insurance premium paid to bring the equipment from the place of purchase to the place of installation is a capital expenditure.

  • Capital expenditures refer to funds that are used by a company for the purchase, improvement, or maintenance of long-term assets to improve the efficiency or capacity of the company.
  • Long-term assets are usually physical, fixed, and non-consumable assets such as property, equipment, or infrastructure, and that have a useful life of more than one accounting period.
  • Also known as CapEx or capital expenses, capital expenditures include the purchase of items such as new equipment, machinery, land, plant, buildings or warehouses, furniture and fixtures, business vehicles, software, or intangible assets such as a patent or license.
  • Capital expenditures (CAPEX) are a company’s major, long-term expenses that are not incurred on a day-to-day basis.
  • An insurance premium paid to bring the equipment from the place of purchase to the place of installation is a capital expenditure as it is not a recurring expense and has to be paid probably only once unlike a life insurance premium which has to be paid after every regular interval till policy exists.

Thus, option 2 is the correct answer.

  • All the expenditures which are incurred in the day-to-day conduct and administration of a business and the effect of which is completely exhausted within the current accounting year are known as “revenue expenditures”,
  • Revenue expenditures are short-term expenses used in the current period or typically within one year.
  • Revenue expenditures include the expenses required to meet the ongoing operational costs of running a business, and thus are essentially the same as operating expenses (OPEX).
  • Deferred Revenue Expenditure is an expenditure that is revenue in nature and incurred during an accounting period, however, related benefits are to be derived in multiple future accounting periods.

India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.4 Crore+ Students Which one of the following statements is not true ?

  1. An expenditure intended to benefit current year is revenue expenditure.
  2. Amount paid for acquiring goodwill is capital expenditure.
  3. Wages paid for installation of a new machine is usually debited to wages account.
  4. Revenue expenditure is not intended to benefit future period.

Option 3 : Wages paid for installation of a new machine is usually debited to wages account.

  1. An expenditure intended to benefit the current year is revenue expenditure- True
  2. Revenue expenditure is not intended to benefit future period- True.
  3. Explanation:
  4. Revenue Expenditure :
  1. Revenue expenditures are short-term expenses used in the current period or typically within one year.
  2. Revenue expenditures include the expenses required to meet the ongoing operational costs of running a business, and thus are essentially the same as operating expenses.
  3. They are intended to benefit the current year and not in the future years,

Amount paid for acquiring goodwill is capital expenditure- True Explanation:

  1. Goodwill is an intangible asset, but also a capital asset.
  2. Goodwill is classified as a capital asset because it provides an ongoing revenue generation benefit for a period that extends beyond one year,
  3. Capital assets are any assets that are not regularly sold as part of a company’s ordinary business operations but owned because of their ability to help the company generate profit.

Wages paid for the installation of a new machine is usually debited to wages account- False. Explanation:

  1. Capital expenditure or capital expense is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land.
  2. Wages paid on the installation of machinery is treated as a capital expenditure, The journal entry for the same is

Machinery A/C,Dr To Cash/Bank A/C. Therefore, Option 3 is the right answer. India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.4 Crore+ Students Heavy initial expenditure on advertising the launch of a new product should be classified as

  1. Capital expenditure
  2. Revenue expenditure
  3. A loss
  4. Deferred revenue expenditure

Option 4 : Deferred revenue expenditure An expenditure represents a payment with either cash or credit to purchase goods or services. There are three types of expenditure: Capital Expenditure, Revenue Expenditure and Deferred Revenue Expenditure. Deferred Revenue Expenditure

  • Deferred revenue expenditure is an expenditure which is incurred in the present accounting period but its benefits are incurred in the following or the future accounting periods. This expenditure might be written off in the same financial year or over a period of a few years.
  • The benefit of such expenditure generally lasts between 3 to 7 years.
  • The whole expenditure is not debited to the Profit and Loss Account of the current year but spread over the years for which the benefit is likely to last, only a part of such expenditure is taken to the Profit & Loss Account every year and the unwritten off portion is allowed to stand on the assets side of the Balance Sheet.
  • For Example, Amount spent of Rs.5,00,000 on advertising to introduce a new product in the market and it is estimated that the benefit will last for 5 years, then Rs.1,00,000 will be charged every year to the profit & loss account and balance amount shown on the Assets side of the Balance Sheet.

The heavy initial expenditure on advertising the launch of a new product should be classified as Deferred Revenue Expenditure.

Particulars Capital Expenditure Revenue Expenditure
Nature Capital Expenditure is incurred for the acquisition or erection of a fixed asset. Revenue Expenditure is incurred for the day to day running of the business.
Capacity Capital Expenditure is incurred for the purpose of increasing the earning capacity of the business. Revenue Expenditure is incurred for maintenance of earning capacity i.e. for keeping the assets in efficient working order.
Benefit Capital Expenditure yields benefit normally over a long period. Revenue Expenditure yields benefit for a maximum period of one year.
Deprecation Deprecation will be charged on Capital Expenditure every year. There is no Deprecation will be charged on Revenue Expenditure.
Profit & Loss Capital Expenditure is not written in Trading or Profit & Loss Account. Revenue Expenditure is written in Trading or Profit and Loss Account.
Balance Sheet Capital Expenditure is written in the Balance Sheet under Fixed Assets. Revenue Expenditure is not written in the Balance Sheet, these effected profit & loss accounts.

India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.4 Crore+ Students Which one of the following statements is not true ?

  1. An expenditure intended to benefit current year is revenue expenditure.
  2. Amount paid for acquiring goodwill is capital expenditure.
  3. Wages paid for installation of a new machine is usually debited to wages account.
  4. Revenue expenditure is not intended to benefit future period.
  5. All the statements are true

Option 3 : Wages paid for installation of a new machine is usually debited to wages account.

  • The incorrect answer is Option 3
  • Key Points
  • An expenditure intended to benefit the current year is revenue expenditure- True
  • Revenue expenditure is not intended to benefit future period- True.
  • Explanation:
  • Revenue Expenditure :
  1. Revenue expenditures are short-term expenses used in the current period or typically within one year.
  2. Revenue expenditures include the expenses required to meet the ongoing operational costs of running a business, and thus are essentially the same as operating expenses.
  3. They are intended to benefit the current year and not in the future years,

Amount paid for acquiring goodwill is capital expenditure- True Explanation:

  1. Goodwill is an intangible asset, but also a capital asset.
  2. Goodwill is classified as a capital asset because it provides an ongoing revenue generation benefit for a period that extends beyond one year,
  3. Capital assets are any assets that are not regularly sold as part of a company’s ordinary business operations but owned because of their ability to help the company generate profit.

Wages paid for the installation of a new machine is usually debited to wages account- False. Explanation:

  1. Capital expenditure or capital expense is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land.
  2. Wages paid on the installation of machinery is treated as a capital expenditure, The journal entry for the same is

Machinery A/C,Dr To Cash/Bank A/C. Therefore, Option 3 is the right answer. India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.4 Crore+ Students : Types of Expenditure MCQ – Objective Question Answer for Types of Expenditure Quiz – Download Now!