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- Name – Quiz 16 – Capital Expense – (Answers)
- Topic – Capital Expense
- Answers with Explanation
Q1. Expenses like ‘upgradation of asset’ are added to the cost of the asset.
Ans. The given statement is True. Expenses that are capital in nature are added to the cost of an asset. Upgradation of an asset increases the output of the asset, therefore, it is considered a capex.
Q2. Which of these is a capital expenditure?
Ans. Upgrading a Fixed Asset is capital expenditure because it will provide benefits for more than one accounting period.
Q3. Revenue expenditure mainly helps to increase the earning capacity of a business.
Ans. The given statement is False. Capital Expenditure is incurred for the purpose of increasing the earning capacity of the business. Revenue Expenditure is incurred for maintenance of earning capacity i.e. for keeping the assets in efficient working order.
Q4. Capital expenditure is shown in the cash flow statement.
Ans. The given statement is True. CapEx can be found in a company’s cash flow statement under the heard ‘investing activities’.
Q5. Cost incurred on the installation of the machine is _____ in the cost of the asset.
Ans. Any cost incurred to make the asset ready to use is added to the cost of the asset. Example – Installation cost, freight inwards, etc.
Q6. Fixed asset liquidated within the same accounting year is a capital expense.
Ans. The given statement is False. In rare cases, if a fixed asset has a useful life of less than one year, it must be expensed on the income statement and should not be treated as a capital expense.
Q7. Capital expenses are also shown in the profit & loss account.
Ans. The given statement is False. This type of expenditure is shown in the balance sheet on the asset side.
Q8. Legal cost incurred to acquire a fixed asset is a capital expenditure.
Ans. The given statement is False. Capital expenses include everything from installation costs to acquisition costs and extending or improving fixed assets.
Q9. Benefits derived from capital expenses are exhausted _____.
Ans. Capital expenditures provide benefits for several years beyond the period in which they were actually spent.
Q10. Wages paid on the installation of machinery is not a capital expense.
Ans. The given statement is False. Any cost incurred on the installation of machinery is a capital expenditure as they are essential for the asset to function.
Q11. Which of these is a capital expense?
Ans. Any cost incurred to buy, install & upgrade a fixed asset is treated as a capital expenditure. Purchase Order is not an expense but just a document whereas salary is OPEX.
Q12. Capital expenses are shown in _____.
Ans. Capital expenses are shown in the balance sheet as fixed assets.
Q13. Capital expenses are also termed as _____.
Ans. CAPEX is the term used for capital expenses.
Q14. Capital expenses are incurred _____.
Ans. Capex/Capital Expenditure/Capital Expenses are expenditures incurred by a business to acquire fixed assets or add value to them in view of creating future benefits.