CA Foundation · Business Economics · Public Finance
In the classification of government budget expenditure, which of the following is an example of capital expenditure?
Construction of a new highway is capital expenditure because it creates a lasting asset for the government and the economy. Salaries, interest payments and subsidies are revenue expenditure, as they are routine spending that does not create assets or reduce liabilities.
- APayment of salaries to central government employees
- BInterest paid on past government borrowings
- CConstruction of a new highway by the governmentCorrect
- DSubsidy given on fertiliser to farmers
Explanation
Capital expenditure creates physical or financial assets or reduces liabilities. Building a highway creates a durable asset. Salaries, interest payments and subsidies are consumed within the year and do not create assets, so they are revenue expenditure.
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