Categorise the following into revenue expenditure and capital expendit

1.	Categorise the following into revenue expenditure and capital expenditure. Give reasons in support of your answer (i) Repayment of loan with interest (ii) Grants to state governments for creations of assets (iii) Investment in shares (iv) Subsidies (v) Construction of school building
Answer» (i) Repayment of principal amount of loan is a capital expenditure because it reduces liability of government but interest amount will be revenue expenditure because it neither creates any assets nor reduce liability. (ii) It is a revenue expenditure because it neither creates any asset nor reduces liability of central government. (iii) It is a capital expenditure because it increases asset of the government. (iv) It is revenue expenditure because it neither creates any asset nor reduces liabilities (v) It is a capital expenditure because it creates assets of government.

Categorise the following into revenue expenditure and capital expenditure. Give reasons in support of your answer (i) Repayment of loan with interest (ii) Grants to state governments for creations of assets (iii) Investment in shares (iv) Subsidies (v) Construction of school building

Answer»

(i) Repayment of principal amount of loan is a capital expenditure because it reduces liability of government but interest amount will be revenue expenditure because it neither creates any assets nor reduce liability.

(ii) It is a revenue expenditure because it neither creates any asset nor reduces liability of central government.

(iii) It is a capital expenditure because it increases asset of the government.

(iv) It is revenue expenditure because it neither creates any asset nor reduces liabilities

(v) It is a capital expenditure because it creates assets of government.

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