Which one of the following is a capital expenditure?

Compensation paid to directors on termination of their services.

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Expenditure incurred in connection with the renewal of a Trademark.

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Gratuities paid to employees on their retirement.

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Royalty paid in installments for the purchase of rights to manufacture and sell patient medicines.

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Solution

The correct option is A Compensation paid to directors on termination of their services.
Capital expenditures are the funds used to acquire or upgrade a company's fixed assets, such as expenditures towards property, plant, or equipment (PP&E). In accounting, a capital expenditure is added to an asset account, thus increasing the asset's basis (the cost or value of an asset adjusted for tax purposes).
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. Therefore, Compensation paid to directors on termination of their services is capital expenditure.

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