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Question

'Building expenditure' comes under:

The correct answer is

Capital expenditure

Building Expenditure Classification Explained

Understanding the classification of expenditures is crucial in accounting and finance. Expenditures are broadly categorized based on their nature and the benefits they provide to a business or organization. Let's analyze where 'building expenditure' fits.

What is Building Expenditure?

Building expenditure refers to the costs incurred in constructing a new building, acquiring an existing building, or making significant improvements or additions to a building. These expenditures are typically substantial and intended to provide long-term benefits, usually extending beyond one accounting period (year).

Types of Expenditure

To determine the correct classification for building expenditure, it's helpful to understand the main types of expenditures:

  • Revenue Expenditure: These are the costs incurred for the day-to-day operations of a business or to maintain existing assets. They provide short-term benefits, typically within the current accounting period. Examples include rent, salaries, utilities, and repairs that do not significantly extend the life or value of an asset.
  • Capital Expenditure: These are costs incurred to acquire, upgrade, or improve long-term assets such as property, plant, and equipment (including buildings). Capital expenditures are expected to provide economic benefits for more than one accounting period. They are treated as assets on the balance sheet and are often depreciated over their useful lives.
  • Contingency Expenditure: These are expenses that arise from unforeseen circumstances or unexpected events. They are not regular operating costs but are set aside for potential future needs.
  • Recurring Expenditure: These are expenses that occur regularly and periodically, often associated with routine operations. Many recurring expenditures are also revenue expenditures.

Analyzing Building Expenditure

Building expenditure clearly aligns with the definition of Capital expenditure because:

  • It involves acquiring or constructing a significant asset (a building).
  • The benefits derived from the building will last for many years (long-term).
  • It represents an investment rather than a routine operating cost.

Costs like constructing a new factory, purchasing an office building, or adding a major extension are all examples of capital expenditure. Routine maintenance or minor repairs on an existing building would typically be considered revenue expenditure.

Therefore, building expenditure is classified under Capital expenditure.

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Important Questions from Financial Management

  1. Indicate the correct combination of the financial decisions from the following:

    (i) Investment decisions

    (ii) Financing decisions

    (iii) Pricing decisions

    (iv) Liquidity management decisions

    (v) Dividend decisions

    Choose the correct answer from the code given below:

  2. Indicate the correct code for the following types of decisions to be incorporated within financial decisions.

    (a) Investment decisions

    (b) Financing decisions

    (c) Pricing decisions

    (d) Profit distribution decisions

    Code:

  3. Match the items of List-II with the items of List-I and select the correct matching.

    List-I

    List-II

    (a)  Liquidity Risk (i)  Refers to the chance that the firm will be unable to recover its dues from its debtors.
     (b)  Financial Risk (ii)  Refers to the possibility of adverse effect on firm’s assets, liabilities and income due to movement of interest rates.
     (c)  Exchange Risk (iii)  Refers to the firm’s inability to pay its dues towards creditors.
     (d) Default Risk (iv) Refers to the inability of the firm to meet its financial obligations on time owing to non-availability of ready cash.

    Codes:
  4. Which one of the following is related to control function of the financial manager?

  5. Identify the correct sequence of steps involved in decision making for change of technology.

    A. Conducting initial comparisons of alternative technologies.

    B. Evaluating the state of present technology.

    C. Listing down the probable post implementation issues.

    D. Financial feasibility analysis of proposed technology.

    E. Identifying the learning requirements.

    Choose the correct answer from the options given below:

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