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Rs. 2,500 spent on the overhaul of machines purchased second-hand is
- a)Capital expenditure
- b)Revenue expenditure
- c)Deferred revenue expenditure
- d)None of the above
Correct answer is option 'A'. Can you explain this answer?
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Most Upvoted Answer
Rs. 2,500 spent on the overhaul of machines purchased second-hand isa)...
Explanation:
In this case, the amount spent on the overhaul of machines is a capital expenditure because it has been incurred to improve the machines, which are fixed assets. The machines have been purchased second-hand, and the overhaul is necessary to make them usable. The amount spent is of a large amount and is non-recurring in nature. Therefore, it is a capital expenditure, which is recorded in the balance sheet and depreciated over its useful life.
- Capital expenditure: It is an expenditure incurred to acquire or improve a fixed asset. Fixed assets are long-term assets that are not meant for resale, such as land, buildings, machinery, etc. Capital expenditure is usually of a large amount and is non-recurring in nature. It is recorded in the balance sheet and depreciated over its useful life.
- Revenue expenditure: It is an expenditure incurred in the normal course of business, which is essential to maintain the revenue-generating capacity of the business. Revenue expenditure is recurring in nature and is recorded in the income statement. Examples of revenue expenditure include salaries, rent, repairs, etc.
- Deferred revenue expenditure: It is an expenditure that is incurred in the current accounting period but its benefits are expected to accrue over a number of future accounting periods. Deferred revenue expenditure is usually of a large amount and is recorded as an asset in the balance sheet and is written off over its useful life.
In this case, the amount spent on the overhaul of machines is a capital expenditure because it has been incurred to improve the machines, which are fixed assets. The machines have been purchased second-hand, and the overhaul is necessary to make them usable. The amount spent is of a large amount and is non-recurring in nature. Therefore, it is a capital expenditure, which is recorded in the balance sheet and depreciated over its useful life.
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Rs. 2,500 spent on the overhaul of machines purchased second-hand isa)Capital expenditureb)Revenue expenditurec)Deferred revenue expenditured)None of the aboveCorrect answer is option 'A'. Can you explain this answer?
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