Q.Distinguish between Revenue Expenditure and Capital Expenditure, with two examples of each.

The test is simple: does the spending create an asset or reduce a liability, or not?

Revenue Expenditure is recurring in nature and does not create any physical or financial asset for the government, nor does it reduce any liability — it is spending needed to run the ordinary, day-to-day functioning of government. Examples: salaries and pensions paid to government employees, and interest payments on public debt already taken.

Capital Expenditure either creates an asset for the government or reduces a liability. Examples: construction of a road, dam, or school building (creates a durable physical asset), and repayment of the principal of a loan (reduces a financial liability).

Classifying a subsidy or a grant as capital expenditure because the amount is large — size is irrelevant; the classification depends only on whether an asset is created or a liability reduced …