Question
With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct?
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:
Explanation
Statement 1 is correct: Money spent acquiring new technology, patents or equipment builds a long-term productive asset, so it counts as capital expenditure.
Statement 2 is incorrect: Debt and equity financing are both ways of raising funds (capital receipts), not expenditure at all — repaying a loan is capital expenditure, but taking the loan itself is not, and equity financing has nothing to do with ‘revenue expenditure’.