Accounting · Capital and Revenue Expenditure

Considering the following statement regarding the fundamental principles of distinguishing between capital and revenue expenditure, it is essential to analyze the purpose of the spending. Capital expenditure typically results in the acquisition of a non-current asset or an increase in the earning capacity of an existing asset, while revenue expenditure is incurred to maintain the asset's existing earning capacity or for day-to-day business operations. Considering the summary and the statements given below, which of the options correctly identifies the valid assessments? Statement I: Expenditure incurred on the purchase of a second-hand machine is treated as capital expenditure, and any initial repairs required to make that second-hand machine functional for the first time are also capitalized. Statement II: A large sum spent on the repainting of an old factory building to maintain its appearance without increasing its floor area or structural strength is always treated as capital expenditure due to the magnitude of the amount. Statement III: Legal expenses incurred in connection with the defense of a suit claiming that the firm's factory site belongs to the plaintiff are considered revenue expenditure because they do not result in the acquisition of a new asset.