If a Company Classifies an Expenditure as a Capital Expenditure

question 40

Multiple Choice

If a company classifies an expenditure as a capital expenditure instead of a revenue expenditure, which of the following will be false?

• A) Profit for the year of acquisition will be higher.
• B) Depreciation expense will be higher over the asset's life.
• C) It will be expensed in the year in which the expenditure takes place.
• D) The initial cost basis of the asset will be higher.

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Definitions:

Capital Budgeting

The process of evaluating and selecting long-term investments that are in line with the strategic objectives of an organization, such as acquiring new machinery or expanding operations.

Incremental Sales

Additional sales generated by a specific business activity or decision, such as a marketing campaign or product launch.

Operating Expenses

Costs associated with the day-to-day operations of a business, excluding direct labor and materials costs.

Incremental Sales

Additional revenues generated from a new marketing campaign, sales strategy, or any activity beyond normal operations.