Classify each of the following items as a Revenue Receipt, Capital Receipt, Revenue Expenditure, or Capital Expenditure:
(i) Corporation tax collected by the government
(ii) Loan taken from the World Bank
(iii) Salaries paid to government employees
(iv) Expenditure on constructio

Question

Classify each of the following items as a Revenue Receipt, Capital Receipt, Revenue Expenditure, or Capital Expenditure:
(i) Corporation tax collected by the government
(ii) Loan taken from the World Bank
(iii) Salaries paid to government employees
(iv) Expenditure on construction of a new highway
(v) Dividends received from a public sector undertaking
(vi) Repayment of a loan taken in an earlier year
(vii) Subsidies paid to farmers
(viii) Proceeds from disinvestment of a public sector company

Accepted Answer

Applying the classification test — does the item change a liability (create or discharge a loan) or an asset (acquire, recover, or dispose of one)? — item by item:

| Item | Classification | Reasoning |
|---|---|---|
| (i) Corporation tax collected | Revenue Receipt | Tax revenue; creates no liability, reduces no asset |
| (ii) Loan taken from the World Bank | Capital Receipt (debt-creating) | Creates a future liability to repay |
| (iii) Salaries paid to government employees | Revenue Expenditure | Routine spending; creates no asset, reduces no liability |
| (iv) Construction of a new highway | Capital Expenditure (asset-creating) | Creates a physical asset for the government |
| (v) Dividends from a public sector undertaking | Revenue Receipt | Non-tax revenue; no liability or asset change |
| (vi) Repayment of an earlier loan | Capital Expenditure (liability-reducing) | Reduces an existing liability, even though no new asset is created | …

Q.Classify each of the following items as a Revenue Receipt, Capital Receipt, Revenue Expenditure, or Capital Expenditure:

Concept understanding — Capital Budget: Receipts and Expenditure

Item	Classification	Reasoning
(i) Corporation tax collected	Revenue Receipt	Tax revenue; creates no liability, reduces no asset
(ii) Loan taken from the World Bank	Capital Receipt (debt-creating)	Creates a future liability to repay
(iii) Salaries paid to government employees	Revenue Expenditure	Routine spending; creates no asset, reduces no liability
(iv) Construction of a new highway	Capital Expenditure (asset-creating)	Creates a physical asset for the government
(v) Dividends from a public sector undertaking	Revenue Receipt	Non-tax revenue; no liability or asset change
(vi) Repayment of an earlier loan	Capital Expenditure (liability-reducing)	Reduces an existing liability, even though no new asset is created

Q.Classify each of the following items as a Revenue Receipt, Capital Receipt, Revenue Expenditure, or Capital Expenditure:

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