Capital Expenditures 4. 9. Government can influence allocation of resources through:(i) Tax concessions or subsidies:To encourage investment, government can give tax concession, subsidies etc. In such a situation, the government through the budgetary policy, aims to reallocate resources in accordance with the economic (profit maximisation) and social (public welfare) priorities of the country. It requires a number of infrastructural, economics and welfare activities. The difference between the total expenditure of Government by way of revenue, capital and loans net of repayments on the one hand and revenue receipts of Government and capital receipts which are not in the nature of borrowing but which finally accrue to Government on the other, constitutes gross fiscal deficit. Accounting System at class XI and XII. These do not give rise to debt. Capital Expenditures A revenue receipts shall be repetative in nature and shall be shown or credited in the profit and loss account. Capital receipts are funds received by a business which are not revenue in nature & lead to an overall increase in the total capital of a company. Capital receipts cannot be utilized for the creation of reserve fund. Similarly, funds raised from Post Office deposits, Public Provident Fund, NSS deposits, etc. Revenue receipts are the one which affects the profitability of the company like day to day incomes. A receipt journal entry for revenue affects cash or accounts receivable and revenue. Similarly, disinvestment by the govt. Non-Tax Revenue: Non-Tax revenue refers to receipts of the government from all sources other than those of tax receipts. Capital receipts refer to amounts received by a business which lead to an […] Difference between revenue receipts and capital receipt. Capital Receipts are received in exchange of sources of income such as capital goods or assets of the organization. Explain the role the government can play through the budget in influencing allocation of resources. Class 5 Class 6 Class 7 Class 8 Class 9 Class 10 Class 11 Class 12. Revenue budget has two parts: i. It is a short period expenditure and recurring in nature which is incurred every year (as against capital expenditure which is long period expenditure and non-recurring in nature). ADVERTISEMENTS: 3. Capital Receipts and Capital payments B. Meaning. Instead of this he enters into an agreement to get a sum of 36,000 in lump sum to serve for a period of t… It is incurred for acquisition of capital assets. If UP government repays say र 20 crores to Central govt., it means reduction in assets of Central govt, to the time of र 20 crores. What is the basis of classifying government expenditure into revenue expenditure and. Revenue Receipts are recurring in nature because it occurs every month more or less. The main difference between revenue receipts and capital receipts is that revenue receipts are recurring in nature, which the government can expect to receive year after year, whereas capital receipts are a kind of one-time income. Some of these expenditures are meant to bring in more profits for the organisation in the long term while some expenditures are for the short term. disinvestment of PSUs. 1) Tax Revenue: - A tax is a legal compulsory payment imposed by the government on the people. to the producers. Explain how taxes and government expenditure can be used to influence. This type of expenditure adds to the capital stock of the economy and raises its capacity to produce more in future. An expenditure that neither creates assets nor reduces a liability is categorised as revenue expenditure. Whereas when the assets of government are not reduced we get revenue receipts. Thus, the term “receipts” includes sources of public income which are excluded from “revenue.” In a modern welfare state, public revenue is of two types, tax revenue and non-tax revenue. Capital Receipts are shown in the balance sheet and affect the balance sheet by either appearing on the credit side or by the reduction in the value of some asset. 3.5 / 5 ( 4 votes ) Contents1 INTRODUCTION:2 MEANING:3 OBJECTIVES:4 COMPONENTS OF BUDGET:4.1 Revenue Budget:4.2 Capital Budget:5 BUDGET EXPENDITURE:6 ACKNOWLEDGMENT:7 CERTIFICATE: INTRODUCTION: In the modern world, every go government aims at maximizing the welfare of its country. Extra Question for Class 12 Economics Government Budget and the Economy myCBSEguide has just released Chapter Wise Extra Question for class 12. Such expenditure is incurred on long period development programmes, real capital assets and financial assets. What is the difference between direct tax and indirect tax? The Constitution requires that the budget has to distinguish between receipts and expenditure on revenue account from other expenditure. Questions given below are important questions and are expected to be asked in Class 12 Economics board exam 2019-20. ... CBSE Class 12 Economics Solved Question Paper 2016. Revenue Receipts:-Any receipts which do not either create a liability or lead to reduction in assets is called revenue receipts. Tax burden cannot be shifted to another person. Capital Receipts: 1. ... • Difference between capital and revenue reserve ... Capital Receipts; Revenue and Capital Expenditure; After going through this Unit, the students will be able to: • state the meaning of financial statements the . (i) Revenue Expenditure. The main sources of non-tax revenue are: 1. Basis of Difference. Recovery of loan is treated as capital receipt because it causes reduction in assets. All questions and answers from the Economics Solutions Book of Class 12 Commerce Economics Chapter 14 are provided here for you for free. Difference Between Capital Expenditure and Revenue Expenditure A business organisation incurs expenditures for various purposes during its existence. COMPARISON BETWEEN REVENUE EXPENDITURE AND CAPITAL EXPENDITURE. Revenue Receipts are received in substitution of an income of the company. The difference between fiscal deficit and primary deficit shows the number of interest payments on the borrowings made in the past. Revenue receipts are the regular sources of revenue of the government but the capital receipts are irregular sources of revenue. Difference between Direct Tax and Indirect Tax and Examples. Question 1. In a government budget, the revenue deficit is ₹ 35 crores. It is incurred for normal running of government departments and maintenance. Revenue Receipts. You will also love the ad-free experience on Meritnation’s Economics Solutions Solutions. Capital Receipts are the income obtained from the capital assets of the organization. Broadly, any expenditure that does not lead to any creation of assets or reduction in liability is treated as revenue expenditure. The misrepresentation between capital expenditures and revenue expenditures will have a great impact on the soundness of the financial statements. Hence borrowing in government budget is a fiscal deficit. Define tax. Government receipts which neither (a) create liabilities, nor(b)    reduce assets are called revenue receipts. 4 False. Two main examples of capital receipts which create liability are (a) Borrowing, and (b) Raising of funds from PPF and Small Saving Deposits. The difference between revenue expenditure and revenue receipts is a. The private sector always tend to divert resources towards areas of high profit, while, ignoring areas of social welfare. Economics Project on Government Budget is specifically written for cbse students of class 12. The major difference between the two is that the Capital expenditure is a one-time investment of money. Revenue deficit b. © Thereby the tax burden falls more on the rich than on the poor. in the form of selling whole or part of its shares of public sector enterprises to private enterprises is treated capital receipt because it reduces govt. 1 January 2018. … Get free NCERT Solutions for Class 12 Accountancy - Not-for-profit Organisation and Partnership Accounts Chapter 1 Accounting for Not-for-Profit Organisation solved by experts. Thus these are current income receipts of the government from all sources. For example, expenditure on medicines and salaries of doctors in a hospital for rendering services is revenue expenditure. Sources of Income: Taxation is the primary source of income for a government. It is imposed on an individual but is paid by another person either partly or wholly. ... Capital transactions (c) Autonomous transactions (d) Accommodating transactions. | EduRev Commerce Question is disucussed on EduRev Study Group by 165 Commerce Students. ... Differentiate between Revenue Receipts and Capital Receipts. Balance Sheet and the Final Accounts reflect a fair view of the financial statement of the business only when capital expenditure and revenue expenditure correctly represented. Difference between Revenue Expenditure and Capital Expenditure. Current account is the financial account of the economy or any individual entity which shows results of various revenue income and expenditure and calculates revenue profits while capital account indicates various capital income and expenditure like purchase and sale of fixed asset, capital repairs, sale of investments etc Sandeep Garg Solutions Class 12 – Chapter 10 – Part B. These refer to those government receipts that neither create any liability nor they create any reduction in the government assets. Capital receipts are not available for distribution as profits. Unlike revenue received which is a substitution of income. Whether subsidies on diesel is a revenue or capital expenditure. In a mixed economy, the private producers aim towards profit maximisation, while, the government aims towards welfare maximisation. Capital Receipts are the ones which either decreases or increases the value of an asset of the company. Capital receipt and revenue receipt, both are the very important components of accounting. These are proceeds of taxes, interest and dividends on government investments, cess and other receipts for services rendered by government. Difference between Revenue Expenditure and Capital Expenditure. Definition of Capital Expenditure. What is the difference between a capital expenditure and a revenue expenditure? The money which the Government of India had lent in the past to the states, to the PSUs and to the Union Territories, and to the parties and Governments abroad, when recovered back, are called Capital Receipts. But in case of capital receipts which are borrowings, government is under obligation to return the amount alongwith interest. Capital Receipts. How? are also treated as capital receipts because government has to repay these amounts.Two main examples which reduce assets are (a) Recovery of loan, and (b) Disinvestment. Revenue Receipts are the income gained by the daily operational activities of the business. The money which the Government of India had lent in the past to the states, to the PSUs and to the Union Territories, and to the parties and Governments abroad, when recovered back, are called Capital Receipts. The first and foremost difference between the two is, Capital expenditure generates future economic benefits, but the Revenue expenditure generates benefit for the current year only. Revenue deficit = Revenue expenditures − Revenue receipts. On the other hand, fiscal deficit is the difference between the total expenditure and the total receipt of the government. 7:35 mins. C. Current year and previous year D. All the above. Traditionally, all grants given to state governments are treated as revenue expenditure even though some of the grants may be for creation of assets. Revenue receipts are money received by a business as a result of its normal business operations. All questions and answers from the Economics Solutions Book of Class 12 Commerce Economics Chapter 14 are provided here for you for free. NCERT Solutions for Class 12 Macro Economics Chapter-8 Government Budget and the Economy ... .is the difference between total receipts and total expenditure. For example, construction of hospital building is capital expenditure. Here, please note that Loan recovery is Capital Receipt but the interest received on these loans is revenue receipts. 6. (ii)    Capital Receipts. Key Differences Between Capital and Revenue Expenditure. 2 True 3 True. Ques 1 How are capital receipts different from revenue receipts … This type of expenditure adds to the capital stock of the economy and raises its capacity to produce more in future. (i)    Revenue Receipts. Thus recovery of loan by Central govt. Differentiate between Revenue Receipts and Capital Receipts. If it creates an asset or reduces a liability, it is categorised as capital expenditure. Thus, the Example of Revenue Receipts: Question: subsidy received from the government $10000. These are financed out of revenue receipts. Interest: Government receives interest on loans given by it to state governments, union … Explain the role of government budget in influencing allocation of resources. Web Document. Capital Expenditures 232, Block C-3, Janakpuri, New Delhi, Taxes are instituted on the income that residents of a country receive from employment and entrepreneurial endeavors. 7: Its balance is carried over to Receipts & Payments Account of the next year. If it creates an asset or reduces a liability, it is categorised as capital expenditure. Capital receipts are non-recurring receipts that either increase a liability or decrease an asset. Receipt in lump sum or in Instalments.Whether any income is received in lump sum or in instalments, it will not make any difference as regards its nature, e.g., an employee is to get a salary of 1,000 p.m. Capital receipts The receipts which create corresponding liability for the government or lead to reduction in assets of the government are termed as capital receipts, e.g. {$11000(Revenue Exp) + $5000 (capital exp)} minus {$10000 (revenue rec) +$5000(NDCR)} = $1000. Solution: Revenue Defici = Revenue Expenditure – Revenue Receipt A decline in the government liabilities and creates assets for the government. Economics Class 12 - Government Budget ... 10:46 mins. Let's us take a look. It is recurring in nature and incurred regularly. An expenditure that neither creates assets nor reduces a liability is categorised as revenue expenditure. difference between revenue receipts and capital receipts. Few common examples are receipts from sale of goods and services, discount received from creditors or suppliers, interests earned, dividends received, rent received, commission received, bad-debts recovered, income from other sources, etc. assets because it owns money that it lends. Fiscal Deficit ; The fiscal deficit is the difference between the government’s total expenditure (both revenue and capital) and its total receipts excluding borrowings. ADVERTISEMENTS: Difference Components of Revenue and Capital Receipts! Categorisation to Revenue/Capital Receipts — (i) It is capital receipt because it reduces financial assets. Distinguish between revenue expenditure and capital expenditure. Fiscal deficit c. Budget deficit d. Primary deficit View Answer / Hide Answer. RBSE Class 12 Economics Chapter 23 Short Answer Type Questions (SA-I) Question 1. The capital receipt is received in exchange for the source of income. Such expenditure is met out of capital receipts of the government including borrowing from public and foreign governments. A revenue receipt does not reduce the liability of the government and it does not add to assets of the government. 5 True. 6: Its balance may be either debit or credit. Capital Receipts are the income obtained from the capital assets of the organization. is treated as capital receipt. Revenue Expenditures Capital Budget: it deals with the capital aspect of the government budget and it consists of: i. Revenue Receipts are the income gained by the daily operational activities of the business. Revenue Receipts are shown on the credit side of the profit and loss account of the company. These expenditures are met out of capital receipts of the government including capital … Examples of non-debt capital receipts are: Recovery of loans, proceeds from sale of public enterprises (i.e., disinvestment, etc.). On the contrary, revenue expenditure occurs frequently. You will also love the ad-free experience on Meritnation’s Economics Solutions Solutions. Difference between Revenue Receipts and Capital Receipts. Bank Loan, Debenture etc: Revenue Receipts are that amount which is received/earned from operational activities i.e. May 30,2020 - What is capital receipts and revenue receipts ? 9 Legacy. Classification of these transactions reflects in the final statements of the company. is central govt. Examples of revenue expenditure are salaries of government employees, interest payment on loans taken by the government, pensions, subsidies, grants, rural development, education and health services, etc. Difference between revenue receipts and capital receipt Report ; Posted by Sidhant Negi 2 years, 9 months ago. 10:10 mins. Capital Receipts: Money generated from sale of assets, shares, debentures, loan received, investment made by new partner etc. Expenditure is basically spending of funds or money to avail services or for purchasing. A capital receipt generally results from financing activities rather than operational activities, but there are many other differences. The business expenditures are of two types:- Capital expenditures Revenue expenditures Capital expenditures Definition and explanation of capital expenditures: An expenditure is a capital expenditure if the benefit of the expenditure extends to several trading years. (Q11) The following figures are based on budget estimates of GOI for the year 2013 - 2014 : (Rs. Revenue Expenditure and Capital Expenditure of India! Difference Between Capital Expenditure and Revenue Expenditure A business organisation incurs expenditures for various purposes during its existence. 22 May 2017. The primary difference between Capital Receipts vs Revenue Receipts is that Capital receipts are the receipts of non-recurring nature which either creates the liability of the company or reduces the company’s assets whereas revenue receipts are the receipts of recurring nature and are reported in the statement of income of the company. What is the difference between revenue expenditure and capital expenditure? 1. In deciding whether a particular receipt is of a capital or revenue type, the following considerations are considered to be immaterial and not going to decide or change the character or nature of the receipt. "Acquaint with Economics" 09451927636 - Skype Classes for Class XII - transmission Center Kendriya Vidyalaya, Vidisha ( Bhopal Region ) 8. To know about the capital expenditures and revenue expenditures, first of all, it is very important to know about the meaning of expenditure beforehand. Capital Receipts are the income obtained from the capital assets of the organization. Government receipts are divided into two groups — Revenue Receipts and Capital Receipts.Basis of classification—All government receipts which either create liability or reduce assets of the government are treated as capital receipts whereas receipts which neither create liability nor reduce assets of the government are called revenue receipts. (ii) and (iii) are revenue receipts because these create neither liabilities nor cause any reduction in assets. Some of these expenditures are meant to bring in more profits for the organisation in the long term while some expenditures are for the short term. Any income that does not generate a liability is revenue.For example, if the Government borrows money from World Bank, it will increase its liabilities (because this money has to be paid back)- so cannot be called revenue. An expenditure that neither creates assets nor reduces a liability is categorised as revenue expenditure. Transactions—both capital and revenue-are recorded here. Description: The most important receipts under this head are interest receipts (received on loans given by the government to states, railways and others) and … Capital receipt is shown on the liabilities side of the Balance Sheet. 10:27 mins. The income tax burden is equitably distributed on different people and institutions. No decline in government liabilities and does not create assets for the government. Meaning. This is the basis of classification between the two. (A) Capital expenditure which leads to creation of assets are (a) expenditure on purchase of assets like land, buildings, machinery and construction of roads, canals, etc. It is imposed on the income of a person based on the principle of ability to pay. [1]Surbi, S. Difference Between Capital Expenditure and Revenue Expenditure. Revenue receipts and revenue payments. This is the basis of classification between the two. Capital receipts may be debt creating or non-debt creating. The difference between capital expenditure and revenue expenditure are expained in tabular form. through heavy taxes and encourages the use of ‘Khaki products’ by providing subsidies. Difference between Revenue Expenditure and Capital Expenditure. The term “Revenue Receipt” is made up of two words revenue and receipts. All Economics Solutions Solutions for class Class 12 Commerce Economics are prepared by experts and are 100% accurate. Capital Receipts and Sources of Capital Receipt. Components (Sources) of Revenue Receipts: Revenue receipts of the government are divided into two groups, namely, (i) tax revenue and (ii) non-tax revenue. Capital Receipts are the income generated from the non-operating sources, which are having a long term effect. All Economics Solutions Solutions for class Class 12 Commerce Economics are prepared by experts and are 100% accurate. Capital Receipts are that amount which is received from non-operational activities i.e. 5. In accounting and finance, they can be divided into two types – capital receipts and revenue receipts. Revenue Receipts ii. Capital Receipts appears on the liabilities side of the Balance Sheet whereas Revenue Receipts appears on the credit side of the Profit and Loss Account as income for the financial year. Answer: it reduces the cost of production of the goods, hence it is revenue received only. Loans raised from debenture-holders and financial institutions etc., 4. They can also raise money from the public, such loans are market loans. 2020 Zigya Technology Labs Pvt. Usually the cost is recorded in a balance sheet account that is reported under the heading of Property, Plant and Equipment. (iv) This is capital receipt because disinvestment reduces government assets. Here, please note that Loan recovery is Capital Receipt but the interest received on these loans is revenue receipts. These are funds generated from non-operating activities of a business hence are not shown inside the income statement instead they are shown inside a balance sheet.. Or wholly way, revenue receipts difference between capital receipts and revenue receipts class 12 economics a substitution of income: Taxation the. Result of its normal business operations different means an asset 2 years, 9 months ago non-operational. Soundness of the organization loan, Debenture etc: revenue receipts … difference direct! 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