Question

Rita incurred the following expenditure on various items during the year ended 31^st March, 2023. Identify the name/type of expenditure.

• (a) Rs. 25,000 paid for the installation of a new machine.
• (b) Repairs of Rs. 5,000 necessitated by negligence.
• (c) Cost of air-conditioning of the office of the General Manager.

Hint:

Capital expenditures create or improve fixed assets, while revenue expenditures main tain the existing assets without increasing their value.

Answer 1

Correct Answer:

(a) Capital Expenditure
(b) Revenue Expenditure
(c) Capital Expenditure

Solution:

1. Installation of a new machine: This is Capital Expenditure as it creates a new fixed asset providing long-term benefits.

2. Repairs due to negligence: This is Revenue Expenditure as it is recurring and does not create a new asset.

3. Air-conditioning for the office: This is Capital Expenditure as it improves the value and functionality of the office.