New Enroll in RBI Grade B New Batch - Starts on May 21

    Question

    Which of the following transactions is capital

    expenditure?
    A During the year ₹3,000 was spent on the repair of various machines. Correct Answer Incorrect Answer
    B ₹15,000 spent on repairs before using a second-hand car purchased recently. Correct Answer Incorrect Answer
    C Cost of annual white-washing of a building. Correct Answer Incorrect Answer
    D Wages paid to workers for converting raw material into finished product. Correct Answer Incorrect Answer

    Solution

    Capital expenditures are those that are incurred to acquire, upgrade, or maintain physical assets such as property, plants, buildings, technology, or equipment. They are long-term investments that are expected to provide benefits for more than one year. The other three transactions are not capital expenditures. a. During the year ₹3,000 was spent on the repair of various machines is an operating expense, as it is incurred to maintain the machines in working order. c. Cost of annual white-washing of a building is also an operating expense, as it is incurred to maintain the building in good condition. d. Wages paid to workers for converting raw material into finished product is a cost of goods sold, as it is incurred to produce the finished product. Therefore, the only transaction that is a capital expenditure is b. ₹15,000 spent on repairs before using a second-hand car purchased recently. This is because the repairs are incurred to prepare the car for use, and the car is a long-term asset that is expected to provide benefits for more than one year.

    Practice Next