In the context of Budget, which of the following statement is correct regarding capital expenditure?
I. It does not creates physical or financial assets.
II. Acquisition of machinery is an example of capital expenditure.
Show answer & explanation
Correct answer: B
Explanation
In the context of the budget, government expenditure is divided into two main categories: capital expenditure and revenue expenditure.
Analysis of the statements:
Statement I (Incorrect): Capital expenditure is expenditure that either creates assets (such as building roads, bridges, schools) or reduces government liabilities (such as repaying debt). Therefore, saying that it does not create assets is incorrect. (Not creating assets is a characteristic of revenue expenditure.)
Statement II (Correct): Acquisition of machinery, purchase of land, or investment in shares are classic examples of capital expenditure because they create physical or financial assets for the future.