[Solved] With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct? Acquiring new technologies is capital expenditure. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure. Select the correct answer using the code given below:

Q9) With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct?

1. Acquiring new technologies is capital expenditure.
2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.

Select the correct answer using the code given below:

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Answer: a

• Capital expenditures are expenses that either increase an asset (such as a school building) or decrease a liability (such as loan repayment).
• These expenses are made on long-term development projects, physical capital assets, and financial assets.
• This kind of investment strengthens the economy’s capital base and increases its capacity to produce more in the future.
• Because it lowers liability, loan repayment is also considered a capital expenditure.
• Debt financing is the process by which a business obtains a loan that will be repaid with interest at a later time.
• It might take the form of an unsecured loan or a secured loan. A business will take out a loan to pay for working capital or an acquisition.
• Equity financing is the process of raising money by selling stock in a business. An ownership interest for shareholders is a result of equity financing.
• Both fall under capital outlays.