PRC-1 · Chapter 1 · Question 2 of 100
'Zaman Logistics' recently upgraded its primary delivery truck by replacing its engine, which significantly increased its load-carrying capacity and efficiency. How should this cost be classified in the books of accounts?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Capital expenditure
Explanation
Replacing an engine enhances the profit-earning capacity and life of the asset, making it a capital expenditure. In contrast, running and ongoing costs are classified as revenue expenditures.
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