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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.

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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.


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