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Classify the following expenditures and receipts as capital or revenue:
Q.Amount received from IDBI as a medium term loan for augmenting working capital.
- a)Capital expenditures
- b)Revenue expenditures
- c)Capital receipt
- d)Revenue receipt
Correct answer is option 'C'. Can you explain this answer?
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Classify the following expenditures and receipts as capital or revenue...
Capital or Revenue Expenditure and Receipts
Capital and revenue expenditures and receipts are important concepts in accounting. Capital expenditures are expenses incurred for acquiring or improving fixed assets, whereas revenue expenditures are expenses incurred for operating the business. Capital receipts are funds received by the company from the sale of assets or loans, whereas revenue receipts are funds received from the normal business operations.
Explanation
In the given scenario, the amount received from IDBI is a medium-term loan for augmenting working capital. This is a capital receipt because it is a loan and not earned from the normal business operations. The company can use this loan to improve its working capital, which is a revenue expenditure.
Therefore, the correct answer is option C, which is capital receipt.
Conclusion
Understanding the difference between capital and revenue expenditures and receipts is important for businesses to properly account for their financial transactions. Capital expenditures and receipts affect the company's long-term assets and liabilities, while revenue expenditures and receipts affect the company's short-term operations.
Capital and revenue expenditures and receipts are important concepts in accounting. Capital expenditures are expenses incurred for acquiring or improving fixed assets, whereas revenue expenditures are expenses incurred for operating the business. Capital receipts are funds received by the company from the sale of assets or loans, whereas revenue receipts are funds received from the normal business operations.
Explanation
In the given scenario, the amount received from IDBI is a medium-term loan for augmenting working capital. This is a capital receipt because it is a loan and not earned from the normal business operations. The company can use this loan to improve its working capital, which is a revenue expenditure.
Therefore, the correct answer is option C, which is capital receipt.
Conclusion
Understanding the difference between capital and revenue expenditures and receipts is important for businesses to properly account for their financial transactions. Capital expenditures and receipts affect the company's long-term assets and liabilities, while revenue expenditures and receipts affect the company's short-term operations.
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Classify the following expenditures and receipts as capital or revenue:Q.Amount received from IDBI as a medium term loan for augmenting working capital.a)Capital expendituresb)Revenue expendituresc)Capital receiptd)Revenue receiptCorrect answer is option 'C'. Can you explain this answer?
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