Question

The main purpose of the incurring capital expenditure is to______of the business. The main purpose of incurring revenue expenditures is to ______of the business.

• A. Maintain earning capacity, improve the earning capacity
• B. Improve the earning capacity, maintain earning capacity
• C. Maintain earning capacity, maintain earning capacity
• D. Improve the earning capacity, improve the earning capacity

Answer 1

The correct option is B Improve the earning capacity, maintain earning capacity

A revenue expenditure is an amount that is expensed immediately—thereby being matched with revenue of the current accounting period., which incurred in a normal course of business. (e.g. Expenditure on Repairs of machinery maintain the machinery to work in normal capacity)

Capital expenditure or capital expense is the money a company spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. which result in an increase in earning capacity of the business. (E.g. Expenditure on upgradation improve the efficiency of machinery)