Question

Which of the following expenditures is/are not revenue expenditures?

• A. M/s XYZ, property dealers, purchased ten flats @ Rs. 7,00,000 each.
• B. Rs. 20,000 spent for the trial run of newly installed machinery.
• C. Damages paid on account of breach of contract to supply certain goods.
• D. All of the above

Answer 1

Answer: (B)

Rs. 20,000 spent for the trial run of newly installed machinery.

Capital expenditure is the money a company spent to acquire, maintain or improve it's fixed asset. For a property dealer, purchasing of flats is operating activity. Flats are not asset for him. Damages paid for breach of contract is also a revenue expenditure because these are paid for breach of contract to supply goods. But amount paid for trial run of newly installed machinery and all the amount paid till the asset is ready for use is capital expenditure.