Question

Assertion (A): Expenditure associated with construction of new assets is capital expenditure.

Reason (R): Expenditure associated with repair/maintenance of existing assets is current expenditure.

Options

• Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

• Assertion (A) is true but Reason (R) is false.

• Assertion (A) is false but Reason (R) is true.

Answer 1

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Explanation:

The assertion is true since expenditure on the construction or acquisition of new assets generates assets and thus qualifies as capital expenditure. The Reason is also true since investment on the repair and maintenance of existing assets does not produce new assets; it is incurred for the government's day-to-day operations and is thus classified as current (revenue) expenditure. However, the reason refers to a distinct type of expenditure and does not explain why expenditure on construction of new assets is capital expenditure. As a result, the reason is not an accurate explanation of the assertion.