Question

Interest on a term loan for the purchase of machinery where the commercial production has not begun till the last day of the accounting year is _________________.

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

Answer 1

Answer: (A)

Capital Expenditure

Capital Expenditures are for fixed assets, which are expected to be productive assets for a long period of time. All the amounts paid upto the point an asset is ready for use is included in cost of that asset.

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