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Question

Categorise the following government receipts into revenue and capital receipts. Give reasons for your answer. 

(i) Receipt from sale of shares of a public sector undertaking. 

(ii) Borrowing from public. 

(iii) Profit of public sector undertakings. 

(iv) Income tax received by government. 


Solution

(i) Receipt from sale of shares of a public sector undertaking is a capital receipt, as it causes reduction in assets of the government 

(ii) Borrowing from public is a capital receipt, as it creates liability for the government.

(iii) Profit of public sector undertakings is a revenue receipt, because it neither creates liability nor leads to reduction in assets of the government.

(iv) Income tax received by government is a revenue receipt, because it neither creates liability nor leads to reduction in assets of the government. 


Economics

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