Skip to content

CA Foundation · Accounting · Theoretical Framework

Which of the following expenditures incurred by a manufacturing firm is a capital expenditure?

The cost of installing a newly purchased machine is capital expenditure. It is necessary to bring the asset to working condition, so it is added to the machine's cost. Wages, carriage on raw materials and routine repairs are revenue expenses of day-to-day operations.

  1. AWages paid to workers for producing goods for sale
  2. BCarriage paid on raw materials purchased for production
  3. CCost of installing a newly purchased machine before it is put to useCorrect
  4. DRepairs to a machine to maintain its normal working condition

Explanation

Installation cost incurred to bring a machine to working condition forms part of the cost of the asset, so it is capitalised. Wages, carriage on raw materials and ordinary repairs are costs of running the business and are revenue expenses charged to the profit and loss account.

Did you get it right without looking?

One question tells you little. A timed set on Theoretical Framework shows your real accuracy, how long you take and where you lose marks.

Practise Theoretical FrameworkFree diagnostic mock

More Theoretical Framework questions