With reference to the expenditure made by an organization or a company, which of the following statements is/are correct? (UPSC Prelims, 2022)1. Acquiring new technology is a 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:
✓ Correct answer: a) 1 only
ExplanationAns: A Exp:Statement 1 is correct: When a company funds are used to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment are known as Capital Expenditure (CapEx) of a Company.When a company borrows money to be paid back at a future date with interest it is known as debt financing.Example: Repayment of a loan is an example of capital expenditure.Statement 2 is incorrect: Equity financing is the process of raising capital through the sale of shares.It is an example of non-debt capital receipts.Capital receipts are receipts that create liabilities or reduce financial assets.They also refer to incoming cash flows.Examples: Recovery of loans and advances, disinvestment, issue of bonus shares, etc.
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