Capital vs. Revenue Expenditure in Asset Purchase

Steps:

• Identify capital expenditure as costs acquiring or enhancing long-term assets, added to the asset's value.
• Note the context: purchasing a vehicle from overseas, so initial costs to make it usable are capital.
• Classify delivery as part of acquisition, while ongoing costs are revenue.
• Eliminate options based on whether they relate to initial setup or daily operations.

Why A is correct:

• Delivery charge is capital expenditure per accounting standards (e.g., IAS 16), as it forms part of the asset's cost to bring it to usable location and condition.

Why the others are wrong:

• B: Insurance is revenue expenditure, covering ongoing risk protection, not asset acquisition.
• C: Petrol is revenue expenditure, a consumable cost for daily operations.
• D: Replacement tyres are revenue expenditure, treated as repairs or maintenance, not enhancing the asset's value.

Final answer: A