| The Capital Expenditure of the central government includes: |
| 1. Creation of physical assets |
| 2. Loans to state governments |
| 3. Repayment of loans |
| Choose the correct one: |
A) Only 1 and 2
B) Only 2 and 3
C) Only 1 and 3
D) All 1, 2 and 3
Correct Answer: D
Solution :
[d] An expenditure that neither creates assets nor reduces a liability is categorised as revenue expenditure. If it creates an asset or reduces a liability/it is categorised as capital expenditure. An expenditure which either creates an asset (e.g., school building) or reduces liability (e.g., repayment of loan) is called capital expenditure. [a] Capital expenditure which leads to creation of assets are [a] expenditure on purchase of land, buildings, machinery, [b] investment in shares, loans by Central government to state government, foreign governments and government companies, cash in hand and [c] acquisition of valuables. Such expenditures are incurred on long period development programmes, real capital assets and financial assets. This type of expenditure adds to the capital stock of the economy and raises its capacity to produce more in future. [b] Repayment of loan is also capital expenditure because it reduces liability. These expenditures are met out of capital receipts of the government including capital transfers from rest of the world.
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