Question 9
1. Acquiring new technology is capital expenditure.
2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.
Select the correct answer using the code given below:
AOptions
BSolution
Let's analyze the statements regarding expenditure made by an organization or a company:
1. Acquiring new technology is capital expenditure: Capital expenditure (CapEx) refers to funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. New technology (e.g., specialized software, machinery, patents, R&D leading to new products) is an asset that provides benefits over a long period. Therefore, its acquisition is considered capital expenditure. This statement is correct.
2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure: Debt financing (borrowing money) and equity financing (raising money by issuing shares) are methods of *raising capital* (financing activities), not types of *expenditure* (spending money). Expenditure refers to the use of funds to acquire assets or incur costs. Capital expenditure involves spending on assets with long-term benefits, while revenue expenditure involves spending on day-to-day operations. Financing activities are distinct from expenditure. Therefore, statement 2 is incorrect.
CStrategy
To correctly answer questions on expenditure, differentiate clearly between capital expenditure (investment in assets for future benefit) and revenue expenditure (costs for day-to-day operations). Also, understand that financing methods (like debt or equity) are distinct from actual spending.
DSyllabus Analysis
This question falls under the Indian Economy section, focusing on basic economic and accounting concepts related to public and corporate finance.
EQuestion Analysis
Medium. It tests a fundamental understanding of financial terminology.