Classification of Expenditure

Expenditure can be classified into various types based on the nature and purpose of the expenditure. Some of the common types of expenditure include:

1. Capital Expenditure: Capital expenditure refers to the expenditure incurred for acquiring or improving a fixed asset or a long-term investment. It is expected to provide benefits for more than one accounting period.

2. Revenue Expenditure: Revenue expenditure refers to the expenditure incurred for the day-to-day operations of the business. It is expected to provide benefits for the current accounting period only.

3. Preliminary Expenditure: Preliminary expenditure refers to the expenditure incurred before the commencement of a business or before the start of commercial production. It includes expenses such as incorporation fees, legal fees, and expenses incurred for the preparation of a feasibility report.

4. Deferred Revenue Expenditure: Deferred revenue expenditure refers to the expenditure that is revenue in nature but its benefits are expected to be derived over a period of time. It is treated as an asset and is written off over a period of time.

Explanation

In the given question, the expenditure incurred of Rs. 20,000 is for the trial run of a newly installed machinery. This expenditure is incurred for testing the machinery and ensuring that it is working properly. As the expenditure is incurred for a capital asset, which is the newly installed machinery, it is classified as capital expenditure. The expenditure is expected to provide benefits for more than one accounting period as it is incurred for a long-term asset. Thus, the correct answer is option 'B' - capital expenditure.

All expenses incurred before the machinery will be start working that is capital expenditure