Correct Option: D. Purchase of fuel for vehicle Explanation of Why Option D is Correct In financial accounting, expenditures are classified into two main categories: capital expenditures and revenue expenditures. Understanding the distinction between these two types of expenditures is crucial for accurate financial reporting and analysis.

1. Revenue Expenditure Defined: Revenue expenditures are costs that are incurred in the day-to-day operations of a business. These expenditures are typically short-term in nature and are used to maintain the current operational capacity of the business. They do not provide long-term benefits and are usually fully expensed in the period they are incurred.
2. Example of Revenue Expenditure: The purchase of fuel for a vehicle is a classic example of a revenue expenditure. Fuel is necessary for the vehicle to operate and is consumed quickly. The cost of fuel is recorded as an expense in the income statement for the period in which it is purchased, reflecting its role in generating revenue during that period.

Why the Other Options are Incorrect

• Option A: Purchase of plant
• Explanation: The purchase of plant refers to acquiring long-term assets, such as machinery or buildings, which are used in the production of goods or services over several years. This is classified as a capital expenditure because it provides long-term benefits and is not fully expensed in the period of purchase. Instead, the cost is capitalized and depreciated over its useful life.
• Option B: Purchase of a new engine
• Explanation: Similar to the purchase of plant, acquiring a new engine is also a capital expenditure. It is a significant investment that enhances the operational capacity of a vehicle or machinery. The cost of the engine will be capitalized and depreciated over its useful life, rather than being expensed immediately.
• Option C: Construction of office wall
• Explanation: The construction of an office wall is another example of a capital expenditure. This expenditure improves the physical structure of the office and provides long-term benefits. Like the previous options, the cost of constructing the wall would be capitalized and depreciated over time.

Summary of Key Points

• Revenue Expenditures: Short-term costs necessary for daily operations, fully expensed in the period incurred (e.g., fuel).
• Capital Expenditures: Long-term investments in assets that provide benefits over multiple periods (e.g., plant, engines, construction).
• Financial Reporting: Correct classification of expenditures is essential for accurate financial statements and performance analysis.
• Common Pitfall: Confusing revenue and capital expenditures can lead to misstatements in financial reporting, affecting profitability and asset valuation.

Revision Summary

• Revenue expenditures are short-term costs for daily operations, while capital expenditures are long-term investments.
• The purchase of fuel for a vehicle is a revenue expenditure, as it is consumed quickly and expensed immediately.
• Capital expenditures include purchases like plant, engines, and construction, which provide long-term benefits and are depreciated.
• Accurate classification of expenditures is crucial for financial reporting and analysis.