CA Foundation · Business Economics · Public Finance
Which of the following is an example of a government's capital expenditure rather than revenue expenditure?
Construction of a new national highway is capital expenditure because it creates a lasting asset for the government and economy. Teachers' salaries, interest payments and fertiliser subsidies are consumed within the year and create no asset, so they are classified as revenue expenditure.
- APayment of salaries to government school teachers
- BInterest paid on past government borrowings
- CConstruction of a new national highwayCorrect
- DSubsidy given on fertiliser
Explanation
Capital expenditure creates physical or financial assets or reduces liabilities, as when a highway is built. Salaries, interest and subsidies are consumed in the current year and create no asset, so they are revenue expenditure.
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