Capital Expenditure MCQs Quiz | Class 10
This quiz covers Class X Elements of Book-Keeping & Accountancy (Code 254), focusing on Unit 1: Capital and Revenue, specifically Capital Expenditure. You will be tested on your understanding of expenditures that create assets or benefits for a long period, with examples like the purchase of machinery. Answer all 10 multiple-choice questions and submit your answers to see your score. Don’t forget to download the PDF for a detailed answer sheet.
Understanding Capital Expenditure
Capital expenditure (CapEx) refers to funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. It is typically a significant investment made to improve the company’s operational efficiency or expand its capacity. These expenditures provide benefits over a long period, usually more than one accounting year, making them distinct from day-to-day operational costs.
Key Characteristics of Capital Expenditure:
- Long-term Benefit: CapEx items provide benefits for multiple accounting periods, enhancing the long-term earning capacity of the business.
- Non-Recurring Nature: These expenditures are generally not incurred regularly; they are often one-time or infrequent investments.
- Enhances Earning Capacity: Capital expenditures typically increase the asset base, improve productivity, or expand the business’s ability to generate revenue.
- Large Outlay: They usually involve a substantial amount of money.
- Capitalized: Capital expenditures are recorded as assets on the balance sheet and are subject to depreciation over their useful life, rather than being expensed immediately in the profit and loss account.
Examples of Capital Expenditure:
Understanding examples helps differentiate CapEx from Revenue Expenditure:
- Purchase of land and buildings for business operations.
- Acquisition of new machinery or equipment to increase production capacity.
- Construction of additional factory premises or expansion of existing ones.
- Major improvements or additions to existing assets (e.g., adding a new wing to a building, upgrading an old machine to increase its efficiency).
- Installation costs of new machinery (which are added to the cost of the asset).
- Acquisition of patents, copyrights, and other intangible assets.
Capital Expenditure vs. Revenue Expenditure:
It’s crucial to distinguish between capital and revenue expenditures as it impacts a company’s financial statements and tax liabilities. Here’s a brief comparison:
| Feature | Capital Expenditure | Revenue Expenditure |
|---|---|---|
| Benefit Period | Long-term (multiple years) | Short-term (current year only) |
| Nature | Non-recurring | Recurring |
| Purpose | Acquire/improve assets, increase earning capacity | Maintain assets, run daily operations |
| Treatment | Capitalized (Balance Sheet) | Expensed (Profit & Loss Account) |
| Examples | Purchase of machinery, building construction | Salaries, rent, repairs, electricity |
Quick Revision Points:
- Capital Expenditure creates future economic benefits.
- It is an investment in fixed assets.
- CapEx appears on the Balance Sheet.
- It increases a firm’s earning potential.
- Depreciation is charged on Capital Expenditure.
Practice Questions:
- Which of the following is NOT an example of Capital Expenditure?
- An expenditure that increases the productive capacity of an asset is generally treated as:
- Installation charges for a new machine are considered a part of which type of expenditure?
- What is the primary characteristic of capital expenditure regarding its benefit period?
- If a company builds a new warehouse, how would the cost of construction be classified?
