CA Foundation · Business Economics · Public Finance
Which of the following is classified as capital expenditure in the Union Budget of India?
Spending on building a new highway is capital expenditure because it creates a durable asset for the government and the economy. Interest payments, salaries and subsidies are revenue expenditure, since they are routine outlays that neither create assets nor reduce liabilities.
- AInterest paid on past borrowings
- BSalaries paid to government employees
- CSubsidy on fertiliser
- DMoney spent on building a new highwayCorrect
Explanation
Capital expenditure creates assets or reduces liabilities of the government. Building a highway creates a physical asset. Interest payments, salaries and subsidies are recurring consumption-type outlays that create no asset, so they are revenue expenditure.
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