Question

An expenditure is capital in nature when ______________.

• A. the receiver of the amount is going to treat it for the purchases of fixed assets
• B. it increases the quantity of fixed assets along with the future benefits
• C. it is paid as interest on loans for the business
• D. none of the above

Answer 1

The correct option is B it increases the quantity of fixed assets along with the future benefits

Capital expenditure are those which are incurred for procuring an asset. Like purchase of plant, building etc. The benefit of capital expenditure is intended for future period. An expenditure is a capital in nature when it increase the quantity of fixed assets.

Revenue expenditure are those which are incurred for day to day business operations. An expenditure is revenue in nature when it benefits the current period only. Examples are payment of salary etc.