Question

Distinguish between Revenue Expenditure and Capital Expenditure with the help of suitable examples.

Hint:

Revenue expenditure neither creates an asset nor reduces a liability, for example salaries. Capital expenditure creates an asset or reduces a liability, for example flyovers.

Answer 1

Step 1: Understanding the Concept:
The government spends money every year. This spending is grouped into revenue expenditure and capital expenditure.
The basis of the grouping is what the spending does to the assets and liabilities of the government.

Step 2: Revenue Expenditure:
It is the expenditure that neither creates an asset nor reduces a liability of the government.
It is spent on running the day to day affairs of the government.
Example: salaries paid to government employees.

Step 3: Capital Expenditure:
It is the expenditure that either creates an asset or reduces a liability of the government.
It adds to the future earning capacity or the wealth of the country.
Example: construction of flyovers.

Step 4: Comparison table.

Basis	Revenue Expenditure	Capital Expenditure
Effect on assets and liabilities	Neither creates an asset nor reduces a liability	Creates an asset or reduces a liability
Example	Salaries of government employees	Construction of flyovers

Step 5: Marks split:
Meaning of revenue expenditure 1 1/2 marks, its example 1/2 mark. Meaning of capital expenditure 1 1/2 marks, its example 1/2 mark.

Final Answer:
Revenue expenditure creates no asset and cuts no liability (salaries). Capital expenditure creates an asset or cuts a liability (flyovers).