Question

Interest payment is an item of
1. Revenue expenditure
2. Capital expenditure
3. Plan expenditure
4. None of the above

Answer 1

Correct Answer - Option 1 : Revenue expenditure

The correct answer is Revenue expenditure.

• The interest payment is an item of Revenue expenditure.

• Revenue Expenditure:
  • Revenue expenditure is a cost that is charged to expense as soon as the cost is incurred.
  • By doing so, a business is using the matching principle to link the expense incurred to revenues generated in the same reporting period.
  • This yields the most accurate income statement results.
  • There are two types of revenue expenditure:
  • Maintaining a revenue-generating asset.
  • This includes repair and maintenance expenses, because they are incurred to support current operations, and do not extend the life of an asset or improve it.
  • Generating revenue.
  • These are all day-to-day expenses needed to operate a business, such as sales salaries, rent, office supplies, and utilities.

• Capital expenditure:
  • Capital expenditure is used to create assets or to reduce liabilities.
  • It consists of:
    • The long-term investments by the government on creating assets such as roads and hospitals, and
    • The money was given by the government in the form of loans to states or repayment of its borrowings.
• Plan expenditure:
  • All expenditures done in the name of planning (i.e. Five Year Plans) were called plan expenditures.
  • For example expenditure on electricity generation, irrigation, and rural developments, construction of roads, bridges, canals, etc.