Which of the following statements is true?

A) Wage bill of the government is a capital expenditure.

B) Disinvestment by the government in a company is a capital receipt.

Question

Question

This question was previously asked in

SSC CGL 2022 Tier-I Official Paper (Held On : 13 Dec 2022 Shift 1)

Answer 1

The correct answer is Option 4.

Key Points

Disinvestment by the government in a company can be either a capital receipt or a revenue receipt, depending on the nature of the transaction.
If the government sells its equity shares in a company to the public or to another entity, the proceeds from the sale are considered a capital receipt.
This is because the government is selling a capital asset (i.e., its ownership stake in the company) and receiving cash in return.
However, if the government sells its goods or services to a company, such as land or buildings, the proceeds from the sale would be considered a revenue receipt.
This is because the government is receiving cash for the sale of goods or services, which is a normal business transaction and not the sale of a capital asset.
In summary, the classification of disinvestment receipts as capital or revenue depends on the nature of the transaction and the asset being sold.

Additional Information

In accounting and finance, capital expenditures refer to investments made by a company or government that are expected to provide long-term benefits, such as the acquisition of fixed assets like land, buildings, equipment, and machinery.
These assets are expected to generate revenue or other economic benefits over a long period of time.
On the other hand, the wage bill of the government is typically considered an operating expenditure because it represents the cost of the government's day-to-day operations.
This includes the salaries and wages paid to government employees, which are necessary to keep the government functioning and to provide public services.
While there may be instances where the government's wage bill is considered a capital expenditure, such as when it is tied to a specific capital project, such as the construction of a new building or infrastructure project, in general, it is considered an operating expenditure rather than a capital expenditure.