Question

Expenditure on fixed assets which increases the earning capacity of the business is known as _____________ .

• A. Non-cash expenditure
• B. Capital Expenditure
• C. Revenue expenditure
• D. None of the above

Answer 1

Answer: (B)

Capital Expenditure

Spending money or incurring a liability for some benefit, service or property received is called expenditure. Payment of rent, salary, purchase of goods, purchase of machinery, purchase of furniture etc. are examples of expenditure. If the benefit of expenditure is exhausted within a year, it is treated as an expense (also called revenue expenditure). On the other hand, the benefit of an expenditure lasts for more than a year, it is treated as an asset (also called capital expenditure) such as purchase of machinery, furniture etc.