Which TWO of the following statements relating to asset expenditure are correct?
- The cost of purchasing or improving non-current assets is classified as asset expenditure.
- Asset expenditure appears as expenditure in an organisation's statement of profit or loss.
- Asset expenditure increases the value of assets in an organisation's statement of financial position.
- Asset expenditure includes purchasing inventory.
1 and 2
1 and 3
2 and 3
2 and 4
View Answer
Correct Answer: B — 1 and 3
Explanation:
Correct Answer: B (1 and 3)
Explanation:
Statement 1 is correct: The cost of purchasing or improving a non-current asset is classified as capital (asset) expenditure, not revenue expenditure.
Statement 3 is correct: Capital expenditure increases the value of non-current assets on the statement of financial position (balance sheet); it is not immediately expensed.
Statement 2 is incorrect: Asset (capital) expenditure does not appear as an expense in the statement of profit or loss. Only revenue expenditure is charged to profit or loss. Capital expenditure is depreciated over the useful life of the asset.
Statement 4 is incorrect: Purchasing inventory is classified as revenue expenditure, not asset (capital) expenditure, since inventory is a current asset consumed in the normal course of business.
Note: No Hindi translation provided in the original question.