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JAIIB AFM Unit 7 — Capital and Revenue Expenditure: Free MCQs with Explanations

By Swarnakshi Jha (ex-banker) · Updated 20 September 2026 · Paper 3 of the November 2026 cycle (28 November 2026)

This page is a free slice of our JAIIB AFM question bank for Unit 7 — Capital and Revenue Expenditure (Module A — Basic Accounting and Finance). The Mock Centre holds 33 questions on this unit alone, every one with a why-right / why-wrong explanation; below are the facts examiners keep returning to, five of those questions to try, and the traps that cost marks.

AFM · Module A33 MCQs in the Mock Centre5 free belowPaper on 28 November 2026

Key facts examiners test from this unit

  1. Three deciding factors: nature (recurring?), duration of benefit, effect on revenue-earning capacity.
  2. Non-recurring is always capital UNLESS materiality makes it revenue (Rs.500 wall clock).
  3. Purchase price for capitalisation includes duties + non-refundable taxes.

5 free practice questions — tap an option

Five basic questions from this unit. Answers lock on the first tap, exactly as in the exam, and a short explanation opens underneath. The Mock Centre adds the moderate and tough questions, why every other option is wrong, the concept capsule and the exam tip — with your score and revision dates tracked.

Question 1 of 5
Whether an expense is capital or revenue depends on:
Why (d): All three factors decide the classification: the NATURE of the expense (recurring or not), the DURATION of its benefit, and its EFFECT on revenue-earning capacity.
Question 2 of 5
All recurring expenses are:
Why (b): Recurring expenses (raw material, salary, rent, telephone) are always REVENUE — they serve the current period only.
Question 3 of 5
Capital expenditure results in the:
Why (b): Capital expenditure results in acquiring assets used for several years (plant, building, software, patents) — earning income across periods.
Question 4 of 5
The cost of relocating or reorganising part or all of an entity's operations is:
Why (b): Relocation/reorganisation costs are in the "NOT capital" list — they maintain/rearrange operations rather than create an enduring asset.
Question 5 of 5
Assertion (A): Misclassifying capital expenditure as revenue (or vice versa) distorts both the P&L account and the balance sheet. Reason (R): Revenue items go to the Trading/P&L account, while capital items go to the balance sheet.
Why (a): Both true, and R explains A: since the two destinations differ, a misclassification hits both statements at once — profit is mis-stated AND assets are mis-stated (recall Unit 6: this is the classic error of principle, invisible to the trial balance).
0 of 5 answered.

Traps in this unit

Confusable AConfusable BThe difference
Regular-interval part replacementDefective part replacementPlanned subsequent cost = capital vs maintenance = revenue
Testing before useDay-to-day servicingCapital (bringing to condition) vs revenue (keeping in condition)
Practise all 33 questions on Unit 7. The free demo opens a slice of every subject with the same explanations; the AFM Online-only pass unlocks all 1,681 AFM questions, the full and module mocks, Smart Revision and the Readiness Score for one year (₹1,299). Not sure where you stand? Take the free 10-question test first.
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Independent study aid — not affiliated with, endorsed by, or sponsored by the Indian Institute of Banking & Finance (IIBF). Exam pattern, dates, fees and passing criteria are set by IIBF — always confirm the current rules at iibf.org.in. Regulatory figures verified as of September 2026; verify from official sources before relying on them in practice.