With reference to the expenditure made by an organization or a company, which of the following statements is/are correct? 1. Acquiring new technology is capital expenditures. 2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure. Select the correct answer using the code given below.

With reference to the expenditure made by an organization or a company, which of the following statements is/are correct? 1. Acquiring new technology is capital expenditures. 2. Debt financing is — UPSC Prelims 2022 Answer & Explanation

Economy2022

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

Acquiring new technology is capital expenditures.
Debt financing is considered capital expenditure, while

equity financing is considered revenue expenditure. Select the correct answer using the code given below.

Explanation

The correct option is "1 only" because acquiring new technology is classified as capital expenditure, which involves significant investments intended to improve a company’s capacity or productive potential, thereby enhancing long-term value. In contrast, debt financing itself is not an expenditure; it is a means of raising funds, and while the interest paid on borrowed funds could be considered a revenue expenditure, equity financing typically involves raising capital without immediate corresponding expenditures. Thus, statement 2 is incorrect, as neither form of financing is correctly categorized as capital or revenue expenditure.

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Explanation

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