UPSC Prelims 2022 · GS Paper I
Question 9: Economy and Social Development
With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct ?
- 1.Acquiring new technology is capital expenditure.
- 2.Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.
Select the correct answer using the code given below :
AnswerUPSC’s answer is (a).
Capital expenditure buys or improves long-lived assets, so acquiring new technology is capital expenditure. Debt and equity are both ways of raising capital, not expenditures at all, and neither is revenue expenditure, which covers day-to-day running costs. Interest paid on debt is a revenue expense, but the borrowing itself is not classed that way. So only statement 1 is correct.
- 1. New technology creates a lasting asset, so it is capital expenditure.
- 2. Debt and equity are sources of finance, not expenditure; equity financing is not revenue expenditure.
How you could have got this
- If you were sure statement 1 is correct, (b) and (d) go: each of them leaves 1 out.
What you needed to know: New technology creates a lasting asset, so it is capital expenditure.
- Then, if you were sure statement 2 is not correct, (c) goes: it includes 2.
What you needed to know: Debt and equity are sources of finance, not expenditure; equity financing is not revenue expenditure.
Only (a) is left. This one needs every statement.
Which options go is worked out from UPSC’s key and the options, not by a model.
Why each option is right or wrong
- (a) Correct. Technology is a capital asset; the debt/equity split in statement 2 is wrong.
- (b) Wrong. Financing sources are not classified as capital or revenue expenditure this way.
- (c) Wrong. Statement 2 is false.
- (d) Wrong. Statement 1 is correct.
Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 2022, General Studies Paper I, Series A. The paper on upsc.gov.in.