Which type of expenditure includes costs related to the purchase of fixed assets?

Which type of expenditure includes costs related to the purchase of fixed assets?

• A. Variable expenditure
• B. Capital expenditure
• C. Revenue expenditure
• D. Operational expenditure

Answer: (B)

Capital expenditure refers to the funds used by an organization to acquire or upgrade physical assets such as property, buildings, industrial plants, technology, and equipment. This type of expenditure is essential for maintaining or increasing the scope of the business's asset base and is considered a long-term investment in the future operational capability of the company. When a business purchases fixed assets, it typically incurs capital expenditure because these assets deliver benefits over multiple accounting periods, as opposed to being consumed in a single period. This is reflected in the financial statements where capital expenditures are capitalized, meaning their costs are spread over the useful life of the asset through depreciation. Other types of expenditures, like variable and revenue expenditures, relate to costs that tend to fluctuate with levels of output or costs incurred for day-to-day operational expenses, which do not typically involve the purchase of long-term assets. Operational expenditure, while necessary for running a business, also does not include investments in fixed assets that will contribute to long-term productivity.

Capital expenditure refers to the funds used by an organization to acquire or upgrade physical assets such as property, buildings, industrial plants, technology, and equipment. This type of expenditure is essential for maintaining or increasing the scope of the business's asset base and is considered a long-term investment in the future operational capability of the company.

When a business purchases fixed assets, it typically incurs capital expenditure because these assets deliver benefits over multiple accounting periods, as opposed to being consumed in a single period. This is reflected in the financial statements where capital expenditures are capitalized, meaning their costs are spread over the useful life of the asset through depreciation.

Other types of expenditures, like variable and revenue expenditures, relate to costs that tend to fluctuate with levels of output or costs incurred for day-to-day operational expenses, which do not typically involve the purchase of long-term assets. Operational expenditure, while necessary for running a business, also does not include investments in fixed assets that will contribute to long-term productivity.