• Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment.
• Expenditures which result in creation of physical or financial assets or reduction in financial liabilitiesEx: Loans repaid, asset creation in infrastructure and social areas.
• Hence, acquiring new technology is a type of capital expenditure. Costs to upgrade or purchase software, investing in new technology and computer equipment, are considered part of Capital expenditure. Hence, statement 1 is correct.

•   Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.

•   Both debt financing and equity financing are considered as part of capital receipts for the company, as capital receipts are receipts that create liabilities or reduce financial assets.

•   Funds from these are used by company for capital expenditure. Hence, statement 2 is not correct.

Debt financing:

•   When a company borrows money to be paid back at a future date with interest, it is known as debt financing.

•   It occurs when a firm sells fixed income products, such as bonds, bills, or notes. It could be in the form of a secured as well as an unsecured loan.

•   Debt financing is the opposite of equity financing, which entails issuing stock to raise money.

•   For example, reliance can choose debt financing, which entails selling fixed income products, such as bonds, bills, or notes, to investors to obtain the capital needed to grow and expand its operations.

Equity financing

•   Equity financing is the process of raising capital through the sale of shares.

•   Companies raise money because they might have a short-term need to pay bills or have a long-term goal and require funds to invest in their growth.

•   By selling shares, a company is effectively selling ownership in their company in return for cash.

• Expenditure incurred for purposes other than creation of physical or financial assets of Government.
• It relates to expenses incurred for normal functioning of Government departments.

A broad category of things that fall under such expenditures in India are:

•   Interest payment by the government on the internal and external loans;

•   Salaries, Pension and Provident Fund paid by the government-to-government employees;

•   Subsidies forwarded to all sectors by the government;

•   Defence expenditures by the government;

•   Postal Deficits of the government;

•   Law and order expenditures (i.e., police & paramilitary);

•   Expenditures on social services (includes all social sector expenditures as education, health care, social security, poverty alleviation, etc.) and general services (tax collection, etc.);

•   Grants given by the government to the Indian states and foreign countries.