PRC-1 · Chapter 1 · Question 73 of 100
'Sunrise Manufacturing' incurred two costs: (1) Rs. 50,000 on an engine overhaul that increased a machine's production output by 15%, and (2) Rs. 10,000 on routine repairs for a broken factory window. How are these classified?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) (1) is Capital expenditure, (2) is Revenue expenditure.
Explanation
An overhaul that enhances capacity or efficiency beyond original estimates is a capital expenditure. Routine maintenance like window repairs is a revenue expenditure.
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