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Medium term loan obtained from bank for augmenting working capital is:
- a)Revenue Expenditure
- b)Capital Expenditure
- c)Revenue Receipt
- d)Capital Receipt
Correct answer is option 'D'. Can you explain this answer?
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Medium term loan obtained from bank for augmenting working capital is:...
Receipts which are obtained in course of normal business activities are revenue receipts and all receipts other than revenue receipts are capital receipts. Securing of loan is not a normal business activity and hence medium term loan taken from bank for augmenting working capital is a capital receipt.
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Medium term loan obtained from bank for augmenting working capital is:...
Capital Receipt:
Medium-term loans obtained from a bank for augmenting working capital are considered as capital receipts. Here's why:
Working Capital Augmentation:
- The loan is obtained to supplement the working capital of the business, which is essential for day-to-day operations and maintaining liquidity.
- Working capital loans are used for funding inventory, accounts receivable, and other short-term operational needs.
Capital Expenditure:
- The loan amount is utilized for capital expenditure purposes, such as purchasing new machinery, expanding production capacity, or acquiring long-term assets.
- Unlike revenue expenditure which is incurred for day-to-day expenses, capital expenditure is aimed at enhancing the business's capabilities for long-term growth.
Long-term Financial Planning:
- Medium-term loans are typically repaid over a longer period, making them a part of the business's long-term financial planning.
- The funds obtained through such loans are injected into the business for sustained growth and expansion.
Balance Sheet Impact:
- As a capital receipt, the loan will reflect on the liabilities side of the balance sheet, representing the funds borrowed by the business for capital investment.
- This distinguishes it from revenue receipts, which are generated from the core operations of the business.
In conclusion, a medium-term loan obtained from a bank for augmenting working capital is classified as a capital receipt due to its utilization for capital expenditure purposes and its impact on the long-term financial health of the business.
Medium-term loans obtained from a bank for augmenting working capital are considered as capital receipts. Here's why:
Working Capital Augmentation:
- The loan is obtained to supplement the working capital of the business, which is essential for day-to-day operations and maintaining liquidity.
- Working capital loans are used for funding inventory, accounts receivable, and other short-term operational needs.
Capital Expenditure:
- The loan amount is utilized for capital expenditure purposes, such as purchasing new machinery, expanding production capacity, or acquiring long-term assets.
- Unlike revenue expenditure which is incurred for day-to-day expenses, capital expenditure is aimed at enhancing the business's capabilities for long-term growth.
Long-term Financial Planning:
- Medium-term loans are typically repaid over a longer period, making them a part of the business's long-term financial planning.
- The funds obtained through such loans are injected into the business for sustained growth and expansion.
Balance Sheet Impact:
- As a capital receipt, the loan will reflect on the liabilities side of the balance sheet, representing the funds borrowed by the business for capital investment.
- This distinguishes it from revenue receipts, which are generated from the core operations of the business.
In conclusion, a medium-term loan obtained from a bank for augmenting working capital is classified as a capital receipt due to its utilization for capital expenditure purposes and its impact on the long-term financial health of the business.
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Medium term loan obtained from bank for augmenting working capital is:a)Revenue Expenditureb)Capital Expenditurec)Revenue Receiptd)Capital ReceiptCorrect answer is option 'D'. Can you explain this answer?
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Medium term loan obtained from bank for augmenting working capital is:a)Revenue Expenditureb)Capital Expenditurec)Revenue Receiptd)Capital ReceiptCorrect answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Medium term loan obtained from bank for augmenting working capital is:a)Revenue Expenditureb)Capital Expenditurec)Revenue Receiptd)Capital ReceiptCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Medium term loan obtained from bank for augmenting working capital is:a)Revenue Expenditureb)Capital Expenditurec)Revenue Receiptd)Capital ReceiptCorrect answer is option 'D'. Can you explain this answer?.
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