Question

Interest on a term loan for the purchase of machinery where the commercial production has already begun is___________.

• A. Capital Expenditure
• B. Revenue Expenditure
• C. Deferred Revenue Expenditure
• D. Prepaid Expenses

Answer 1

The correct option is B Revenue Expenditure

Interest on term loan obtained and utilized for purchase of machinery before the commencement of production will be included in cost of that asset. That's why this is capital expenditure.

But interest paid where the commercial production has already begun is revenue expenditure because after the commencement of production this becomes part of normal business operations.