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CSEET · Economic and Business Environment · Indian Union Budget

A government expenditure is treated as revenue expenditure when it:

Expenditure is revenue expenditure when it neither creates an asset nor reduces a liability of the government. Salaries, subsidies and interest payments are examples. Building assets, repaying loan principal or buying shares are capital expenditures because they change assets or liabilities.

  1. ACreates a physical asset such as a bridge
  2. BNeither creates an asset nor reduces a liability of the governmentCorrect
  3. CRepays the principal of an earlier borrowing
  4. DIs incurred to acquire shares in a public sector company

Explanation

Revenue expenditure covers day-to-day running costs such as salaries, subsidies and interest payments, which neither create assets nor reduce liabilities. Building a bridge, repaying principal and buying shares are capital expenditures because they create assets or reduce liabilities.

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