With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct?
- Acquiring new technology is capital expenditure.
- Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure. Select the correct answer using the code given below:
Correct Answer: Option A
The question tests your understanding of capital expenditure (CapEx) and debt financing.
CapEx refers to funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, technology, or equipment.
Debt financing involves a company borrowing money that must be repaid with interest.
Let's analyze the statements:
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Statement 1 (Correct): Costs associated with upgrading or purchasing software, investing in new technology, and acquiring computer equipment are indeed classified as Capital Expenditure. These investments are expected to provide benefits for more than one accounting period.
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Statement 2 (Incorrect): Both debt financing and equity financing are considered capital receipts for the company. Debt financing creates a liability, while equity financing increases ownership.
Therefore, statement 1 is correct. Statement 2 is incorrect. Hence, only statement 1 is correct.