Which among the following is an example of capital expenditure?

Question

Accepted Answer

The correct option is 4:
Capital expenditure, or CapEx, refers to the money spent by a business to acquire, upgrade, or extend the life of a long-term asset. The fundamental characteristic of CapEx is that the benefit of the expenditure is realised over multiple accounting periods. Purchasing **Furniture** (a fixed asset) is a perfect example of this, as the chairs, desks, or filing cabinets will be used by the company for many years. The entire cost is not treated as an expense in the year of purchase; instead, it is recorded on the Balance Sheet as an asset and gradually written off as an expense through depreciation over its estimated useful life.

The incorrect option is 1:
Rent is considered revenue expenditure. This is a recurring payment made for the routine use of an asset, such as an office space, for a short duration, typically a month or a year. The benefit of the rent payment is completely consumed within the current accounting period, and therefore the entire amount is charged to the Profit & Loss Account as an operating expense to determine the current year's profit.

The incorrect option is 2:
Commission, usually paid to sales personnel or agents, is also an example of revenue expenditure. It is an expense directly incurred in the process of generating the current period's revenue. Like rent, the benefit is short-term and helps in the normal, day-to-day running of the business. It is a selling expense that is entirely expensed in the year it is incurred, without creating any long-term asset.

The incorrect option is 3:
A Dividend is neither a capital nor a revenue expenditure; it is an appropriation of profit. Once a company has calculated its net profit (after deducting all revenue expenses and capital costs like depreciation), the dividend represents the portion of that profit distributed to the shareholders. It is a distribution of wealth, not an expense incurred to acquire an asset or generate revenue, and thus it does not appear on the income statement as an expense.