Question

Payment of compensation to a worker, who has been discharged from service, is a _________.

• A. Capital expenditure
• B. Revenue expenditure
• C. Deferred- revenue expenditure
• D. Non-business expenditure

Answer 1

Answer: (A)

Capital expenditure

Capital expenditure - An amount spent to acquire or upgrade productive assets (such as buildings, machinery and equipment, vehicles) in order to increase the capacity or efficiency of a company for more than one accounting period. Also called capital spending

By terminating inefficient workers, the business will run more economically and profit-earning capacity of the business will increase, so compensation paid to them is a capital expenditure.