With reference to the expenditure made by an organisation or a company, which of the following state

Question

With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct?Acquiring new technology is capital expenditure.Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.Select the correct answer using the code given below:

Accepted Answer

Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. CapEx is often used to undertake new projects or investments by a company. Costs to upgrade or purchase software, investing in new technology and computer equipment, are considered part of Capital expenditure. As they are often employed to improve operational efficiency, increase revenue in the long term, or make improvements to the existing assets of a company. Hence statement 1 is correct.When a company borrows money to be paid back at a future date with interest it is known as debt financing. It occurs when a firm sells fixed income products, such as bonds, bills, or notes. It could be in the form of a secured as well as an unsecured loan. Debt financing is the opposite of equity financing, which entails issuing stock to raise money. For example, reliance can choose debt financing, which entails selling fixed income products, such as bonds, bills, or notes, to investors to obtain the capital needed to grow and expand its operations.Both debt financing and equity financing are considered as part of capital receipts for the company, as capital receipts are receipts that create liabilities or reduce financial assets. Funds from these would be used by the company for capital expenditure such as to grow or expand its operations. Hence statement 2 is not correct.