Identify the INCORRECT statement:
Capital expenditure is incurred to maintain the earning capacity
Capital expenditure is incurred to acquire fixed assets and increase the earning capacity of the business, not merely to maintain it. Maintaining the existing earning capacity is the role of revenue expenditure (e.g., repairs, routine maintenance). Hence the statement that 'capital expenditure is incurred to maintain the earning capacity' is the INCORRECT statement.
The other statements are correct features of capital expenditure:
- It benefits more than one accounting year (long-term benefit).
- It is non-recurring by nature.
- It is incurred to acquire fixed assets used in operations.
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