Which of the following is considered a capital expenditure?

• A. Salaries paid to administrative staff
• B. Purchase of new machinery for production
• C. Purchase of office supplies for daily use
• D. Payment of monthly utility bills

Answer: (B)

Verified step by step guidance

1. Understand the concept of capital expenditure: Capital expenditures are funds used by a company to acquire, upgrade, or maintain physical assets such as property, buildings, or equipment. These expenditures are typically long-term investments that improve the company's capacity or efficiency.
2. Analyze each option provided in the problem: Salaries paid to administrative staff, purchase of new machinery for production, purchase of office supplies for daily use, and payment of monthly utility bills.
3. Determine whether each option qualifies as a capital expenditure: Salaries, office supplies, and utility bills are recurring expenses and are considered operating expenses, not capital expenditures. They do not contribute to acquiring or improving long-term assets.
4. Focus on the purchase of new machinery for production: This option involves acquiring a physical asset that will be used for production over a long period. It is a long-term investment and fits the definition of a capital expenditure.
5. Conclude that the purchase of new machinery for production is the correct answer, as it represents a capital expenditure aimed at improving the company's production capacity.