Question

Money spent on the preparation of project is

• A. Investment
• B. Expenditure
• C. Wastage
• D. None of these

Hint:

Think about the purpose of the spending. If money is spent with the hope of future returns, it's an investment. If it's for day-to-day operations with immediate benefit, it's a revenue expenditure. Project preparation costs are for long-term future returns.

Answer 1

The Correct Option is A

Step 1: Understanding the Question:
The question asks how to classify the money spent on preparing a project, such as conducting feasibility studies, preparing project reports, etc.
Step 2: Key Concept:
In accounting and finance, an investment is an expenditure made with the expectation of generating future income or appreciation in value. Expenditure is a broader term for any spending. Wastage implies a loss with no benefit.
Step 3: Detailed Explanation:
Money spent on the preparation of a project is known as preliminary or pre-operative expense. This expenditure is incurred with the objective of starting a project that will generate revenue and profits in the future. Since this spending is an outlay for expected future benefit, it is best classified as an investment. These costs are typically capitalized (treated as an asset) and then amortized (written off) over the life of the project. While it is a type of expenditure, 'investment' is a more precise term that captures the purpose of the spending. It is definitely not wastage, as it is a necessary step for a successful project.
Step 4: Final Answer
The money spent on the preparation of a project is considered an investment because it is an expenditure made to create future economic benefits.