ExpertEasy1 markMultiple Choice
ACCA · Question 39 · Syllabus C: Business functions, regulation and technology
Routine maintenance costs for factory machinery should be classified as capital expenditure.
Routine maintenance costs for factory machinery should be classified as capital expenditure.
Answer options:
A.
True
B.
False
C.
Only if over $10,000
D.
Only in the first year
How to approach this question
Determine if the cost improves the asset beyond its original state (capital) or just keeps it running (revenue).
Full Answer
B.False✓ Correct
Capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset. Revenue expenditure (like routine maintenance) is incurred in the normal course of business to maintain the existing earning capacity of assets.
Common mistakes
Thinking all costs related to a machine are capital.
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