Which of the following is are correct in regard to Capital Expenditure 1 It includes those expenditu...........

Economic Affairs Public Finance and Debt Management

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Which of the following is/are correct in regard to Capital Expenditure?

1. It includes those expenditure that create permanent assets and yield periodical income.

2. Expenditure on a temporary asset cannot ordinarily be considered as expenditure of capitalnature.

3. It is essential that the concrete assets should be productive or revenue producing incharacter.

Choose appropriate code:

1 only

1 and 2 only

2 and 3 only

1, 2 and 3

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Explanation:

Capital expenditure may be generally defined as expenditure incurred with the object of either increasing concrete assets of a material (e.g. construction of roads, industrial buildings orequipment) and permanent character or of reducing recurring liabilities (repayment of loan).

It is not essential that the concrete assets should be productive in character or that theyshould even be revenue producing. A productive asset may be considered as one whichproduces sufficient revenue to afford a surplus over all charges relevant to its functioning. Itmay on rare occasions be necessary and justifiable to treat as capital a scheme notcommercially remunerative but involving large expenditure, say for the construction of a newcity.

Expenditure on a temporary asset cannot ordinarily be considered as expenditure of capital nature.