With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct?
- 1.Acquiring new technology is capital expenditure.
- 2.Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.
Select the correct answer using the code given below:
Answer & explanation
Answer: (a) 1 only
Spending that creates a lasting asset — such as new technology, machinery or equipment — is capital expenditure. Debt and equity are ways of raising money, not ways of spending it, so neither can be classed as capital or revenue expenditure.
- ✓ 1. Buying new technology adds a long-lived asset that yields benefits over years, which is exactly what capital expenditure means (like spending on machinery and equipment).
- ✗ 2. Borrowing (debt) and issuing shares (equity) are sources of funds. For a government, loans are capital receipts because they create a liability; they are not expenditure of any kind.
Remember · Capital expenditure creates assets or cuts liabilities (land, machinery, technology). Debt and equity are financing — receipts, not expenditure.
📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 5 (practise this chapter) · Class 12 Introductory Macroeconomics, Ch 5 (practise this chapter)
Sources
- NCERT Class 12 · Introductory Macroeconomics, Chapter 5 “There are expenditures of the government which result in creation of physical or financial assets or reduction in financial liabilities. This includes expenditure on the acquisition of land, building, machinery, equipment”
- NCERT Class 12 · Introductory Macroeconomics, Chapter 5 “All those receipts of the government which create liability or reduce financial assets are termed as capital receipts.”
Question and answer: UPSC's official GS Paper I (2022, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·