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Question
Observe the image and state the reason why it is Capital Expenditure.
Options
As it is incurred for maintaining an existing asset.
As there is an increase in the value of a fixed asset.
It is incurred for erection of a fixed asset.
It results in increasing the working life of the plant.
MCQ
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Solution
It results in increasing the working life of the plant.
Explanation:
Replacing or installing a new sewing machine increases the plant’s working life and earning capacity and enhances a fixed asset; such costs are capitalised as capital expenditure because they benefit future accounting periods.
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