With reference to the expenditure made by an organisation or a company, which of the following statements…
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:
1 only
2 only
Both 1 and 2
Neither 1 nor 2
Solution
Acquiring new technology creates a long-term asset, so it is capital expenditure (1 correct). Debt and equity financing are sources of funds, not expenditures; they are part of financing activities, not classified as capital or revenue expenditure (2 incorrect).