Question

Which of the following is NOT an example of capital expenditure incurred by the government?

• A. Expenditure on maintenance of a government school building
• B. Repayment of loans by the government
• C. Expenditure on construction of a new hospital
• D. Loans given by the government

Answer 1

The Correct Option is A

Capital expenditure refers to spending that is used for the acquisition or creation of assets, such as building a new hospital, purchasing machinery, or developing infrastructure. It also includes the repayment of liabilities, such as repaying loans or bonds. This type of expenditure results in the creation of long-term assets or the reduction of existing liabilities.

Capital expenditure is typically non-recurring and contributes to the future economic benefits of the government or organization. It is classified as a non-recurring expense that enhances the overall productive capacity or reduces long-term obligations.

On the other hand, maintenance costs, such as repairs and upkeep of existing assets, are considered revenue expenditure. These costs are recurring in nature and are necessary to maintain the current operational efficiency of assets without creating new ones or reducing liabilities. Revenue expenditure does not add to the value of assets or improve long-term financial standing, making it a routine and recurring cost.

Thus, while capital expenditure builds future assets or reduces liabilities, maintenance costs are essential for sustaining the current operational level and are categorized as revenue expenditure.