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According to the cost classification by relationship with the accounting period, costs can be classified as capital expenses and revenue expenses. What is a capital cost?
- a)A cost incurred for maintaining an asset or running a business
- b)A cost incurred in purchasing an asset to earn income or increase the earning capacity of the business
- c)A cost that varies in direct proportion to the volume of output
- d)A cost incurred under abnormal conditions and not normally incurred in the normal course of production
Correct answer is option 'B'. Can you explain this answer?
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According to the cost classification by relationship with the accounti...
A capital cost, according to the cost classification by relationship with the accounting period, is a cost incurred in purchasing an asset to earn income or increase the earning capacity of the business. Capital costs are incurred at one point in time but the benefits from the asset are spread over multiple accounting years. Examples of capital costs include the cost of purchasing machinery or equipment for a factory.
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According to the cost classification by relationship with the accounti...
B) A cost incurred in purchasing an asset to earn income or increase the earning capacity of the business
Capital costs, also known as capital expenditures or CAPEX, are expenses incurred by a business for the acquisition, improvement, or enhancement of assets that are expected to provide benefits over multiple accounting periods. These costs are typically associated with long-term investments that are essential for the ongoing operations and growth of a business.
Key Points:
- Capital costs are expenses related to the purchase of assets.
- These costs are expected to provide benefits over multiple accounting periods.
- Capital costs are essential for the ongoing operations and growth of a business.
Detailed Explanation:
1. Definition of Capital Cost:
A capital cost refers to the expenses incurred by a business for the acquisition, improvement, or enhancement of assets that are expected to provide benefits over multiple accounting periods. These costs are typically associated with long-term investments that are essential for the ongoing operations and growth of a business.
2. Purpose of Capital Costs:
The primary purpose of incurring capital costs is to acquire assets that can generate income or increase the earning capacity of the business. These assets can include land, buildings, equipment, machinery, vehicles, and technology systems. By investing in these assets, businesses aim to enhance their production capabilities, improve efficiency, expand their market reach, or develop new products and services.
3. Treatment in Financial Statements:
Capital costs are recorded as assets on the balance sheet rather than being immediately expensed on the income statement. They are categorized as non-current assets or fixed assets, depending on their expected useful life. These assets are then depreciated or amortized over their estimated useful life, and the corresponding depreciation or amortization expense is recognized on the income statement over the same period.
4. Examples of Capital Costs:
a) Purchase of a building or land for business operations.
b) Acquisition of machinery or equipment to enhance production capabilities.
c) Investment in technological infrastructure to improve efficiency and performance.
d) Development of software or intellectual property to create new revenue streams.
e) Construction of a new manufacturing facility or expansion of an existing one.
In conclusion, capital costs are expenses incurred by a business for the acquisition, improvement, or enhancement of assets that are expected to provide benefits over multiple accounting periods. These costs play a crucial role in the growth and development of a business by enabling the acquisition of assets that generate income or increase the earning capacity of the business.
Capital costs, also known as capital expenditures or CAPEX, are expenses incurred by a business for the acquisition, improvement, or enhancement of assets that are expected to provide benefits over multiple accounting periods. These costs are typically associated with long-term investments that are essential for the ongoing operations and growth of a business.
Key Points:
- Capital costs are expenses related to the purchase of assets.
- These costs are expected to provide benefits over multiple accounting periods.
- Capital costs are essential for the ongoing operations and growth of a business.
Detailed Explanation:
1. Definition of Capital Cost:
A capital cost refers to the expenses incurred by a business for the acquisition, improvement, or enhancement of assets that are expected to provide benefits over multiple accounting periods. These costs are typically associated with long-term investments that are essential for the ongoing operations and growth of a business.
2. Purpose of Capital Costs:
The primary purpose of incurring capital costs is to acquire assets that can generate income or increase the earning capacity of the business. These assets can include land, buildings, equipment, machinery, vehicles, and technology systems. By investing in these assets, businesses aim to enhance their production capabilities, improve efficiency, expand their market reach, or develop new products and services.
3. Treatment in Financial Statements:
Capital costs are recorded as assets on the balance sheet rather than being immediately expensed on the income statement. They are categorized as non-current assets or fixed assets, depending on their expected useful life. These assets are then depreciated or amortized over their estimated useful life, and the corresponding depreciation or amortization expense is recognized on the income statement over the same period.
4. Examples of Capital Costs:
a) Purchase of a building or land for business operations.
b) Acquisition of machinery or equipment to enhance production capabilities.
c) Investment in technological infrastructure to improve efficiency and performance.
d) Development of software or intellectual property to create new revenue streams.
e) Construction of a new manufacturing facility or expansion of an existing one.
In conclusion, capital costs are expenses incurred by a business for the acquisition, improvement, or enhancement of assets that are expected to provide benefits over multiple accounting periods. These costs play a crucial role in the growth and development of a business by enabling the acquisition of assets that generate income or increase the earning capacity of the business.
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According to the cost classification by relationship with the accounting period, costs can be classified as capital expenses and revenue expenses. What is a capital cost?a)A cost incurred for maintaining an asset or running a businessb)A cost incurred in purchasing an asset to earn income or increase the earning capacity of the businessc)A cost that varies in direct proportion to the volume of outputd)A cost incurred under abnormal conditions and not normally incurred in the normal course of productionCorrect answer is option 'B'. Can you explain this answer?
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According to the cost classification by relationship with the accounting period, costs can be classified as capital expenses and revenue expenses. What is a capital cost?a)A cost incurred for maintaining an asset or running a businessb)A cost incurred in purchasing an asset to earn income or increase the earning capacity of the businessc)A cost that varies in direct proportion to the volume of outputd)A cost incurred under abnormal conditions and not normally incurred in the normal course of productionCorrect answer is option 'B'. Can you explain this answer? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about According to the cost classification by relationship with the accounting period, costs can be classified as capital expenses and revenue expenses. What is a capital cost?a)A cost incurred for maintaining an asset or running a businessb)A cost incurred in purchasing an asset to earn income or increase the earning capacity of the businessc)A cost that varies in direct proportion to the volume of outputd)A cost incurred under abnormal conditions and not normally incurred in the normal course of productionCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for According to the cost classification by relationship with the accounting period, costs can be classified as capital expenses and revenue expenses. What is a capital cost?a)A cost incurred for maintaining an asset or running a businessb)A cost incurred in purchasing an asset to earn income or increase the earning capacity of the businessc)A cost that varies in direct proportion to the volume of outputd)A cost incurred under abnormal conditions and not normally incurred in the normal course of productionCorrect answer is option 'B'. Can you explain this answer?.
According to the cost classification by relationship with the accounting period, costs can be classified as capital expenses and revenue expenses. What is a capital cost?a)A cost incurred for maintaining an asset or running a businessb)A cost incurred in purchasing an asset to earn income or increase the earning capacity of the businessc)A cost that varies in direct proportion to the volume of outputd)A cost incurred under abnormal conditions and not normally incurred in the normal course of productionCorrect answer is option 'B'. Can you explain this answer? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about According to the cost classification by relationship with the accounting period, costs can be classified as capital expenses and revenue expenses. What is a capital cost?a)A cost incurred for maintaining an asset or running a businessb)A cost incurred in purchasing an asset to earn income or increase the earning capacity of the businessc)A cost that varies in direct proportion to the volume of outputd)A cost incurred under abnormal conditions and not normally incurred in the normal course of productionCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for According to the cost classification by relationship with the accounting period, costs can be classified as capital expenses and revenue expenses. What is a capital cost?a)A cost incurred for maintaining an asset or running a businessb)A cost incurred in purchasing an asset to earn income or increase the earning capacity of the businessc)A cost that varies in direct proportion to the volume of outputd)A cost incurred under abnormal conditions and not normally incurred in the normal course of productionCorrect answer is option 'B'. Can you explain this answer?.
Solutions for According to the cost classification by relationship with the accounting period, costs can be classified as capital expenses and revenue expenses. What is a capital cost?a)A cost incurred for maintaining an asset or running a businessb)A cost incurred in purchasing an asset to earn income or increase the earning capacity of the businessc)A cost that varies in direct proportion to the volume of outputd)A cost incurred under abnormal conditions and not normally incurred in the normal course of productionCorrect answer is option 'B'. Can you explain this answer? in English & in Hindi are available as part of our courses for B Com.
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ample number of questions to practice According to the cost classification by relationship with the accounting period, costs can be classified as capital expenses and revenue expenses. What is a capital cost?a)A cost incurred for maintaining an asset or running a businessb)A cost incurred in purchasing an asset to earn income or increase the earning capacity of the businessc)A cost that varies in direct proportion to the volume of outputd)A cost incurred under abnormal conditions and not normally incurred in the normal course of productionCorrect answer is option 'B'. Can you explain this answer? tests, examples and also practice B Com tests.
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