With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct ? 1. Acquiring new technology 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 :
- (a) 1 only ✓ UPSC's answer
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Why the answer is (a)
• Capital expenditure creates or acquires long-lived assets that yield benefits over years; revenue expenditure is spent on day-to-day operations.
• Statement 1 is correct: acquiring new technology — machinery, software, patents — is capital expenditure, recorded as an asset and depreciated.
• Statement 2 is wrong: debt and equity are ways of raising finance, not expenditure; how funds are sourced does not determine whether spending is capital or revenue.
• The same distinction applies in government budgets (capital versus revenue expenditure).
• Hence 1 only, option (a).
Why the other options are wrong
- (b) 2 only
- Statement 2 is wrong: financing methods are not expenditure; statement 1 is correct.
- (c) Both 1 and 2
- Statement 2 is wrong, so both cannot be correct.
- (d) Neither 1 nor 2
- Statement 1 is correct: technology acquisition is capital expenditure.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2022, held on 5 June 2022. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.