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Question
Interest on loans taken to acquire fixed assets only for the period before the asset becomes operational is___________.
Interest on loans taken to acquire fixed assets only for the period before the asset becomes operational is___________.
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Solution
The correct option is A Capital expenditure
Capital expenditure
refers to funds that are used by a company to acquire, improve or maintain long
term assets to improve the efficiency or earning capacity of the
company. All the amount paid up to
the point an asset is ready for use is included in cost of that asset. So interest on loans taken to acquire fixed assets before the assets become operational is capital expenditure. Interest paid after asset becomes operational is revenue expenditure.
Capital expenditure refers to funds that are used by a company to acquire, improve or maintain long term assets to improve the efficiency or earning capacity of the company. All the amount paid up to the point an asset is ready for use is included in cost of that asset. So interest on loans taken to acquire fixed assets before the assets become operational is capital expenditure. Interest paid after asset becomes operational is revenue expenditure.
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