A business paid $6 000 for a major overhaul of machinery which significantly improved its operating efficiency. This should be classified as...
Question 1 Report
A business paid $6 000 for a major overhaul of machinery which significantly improved its operating efficiency. This should be classified as...
Answer Details
The correct answer is capital expenditure.
Capital expenditure is spending that acquires, creates, or significantly enhances a non-current asset, providing benefits beyond the current accounting period. A major overhaul that significantly improves the operating efficiency of machinery goes beyond routine maintenance. It enhances the asset's earning capacity or extends its useful life, so it is treated as capital expenditure.
Revenue expenditure would cover routine repairs or servicing that merely maintain existing performance. Capital receipt and revenue receipt relate to money received, not money spent, so neither applies here.
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