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Difficulty: EasyRecurrent and Capital Expenditure Classification

A local government council incurred several financial disbursements during the fiscal year. Which of the following items represents a capital expenditure?

  1. Construction of a new legislative council hallAnswer
  2. B
    Payment of monthly staff salaries
  3. C
    Purchase of fuel for official motor vehicles
  4. D
    Settlement of monthly electricity utility bills

Answer

Construction of a new legislative council hall
The construction of a new legislative council hall is a capital expenditure because it involves long-term expenditure that creates a permanent physical asset benefiting the public sector entity across multiple accounting periods.

Step-by-Step Solution

1
Identify the nature of public sector expenditures
Expenditures are divided into recurrent (ongoing, routine operational expenses within one fiscal year) and capital (spending resulting in long-term physical assets or additions to government assets).
Classification depends on the economic lifespan and asset-creating nature of the outlay.
2
Evaluate each item against capital expenditure criteria
The construction of a council hall creates a long-term fixed asset, whereas salaries, fuel, and utility bills are short-term operational expenses consumed during the period.
Only disbursements creating long-lasting assets qualify as capital expenditure.

Key Concept

Recurrent vs. Capital Expenditure Classification in Public Sector Accounting
Estimated Time:45s
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Topics

Recurrent and Capital Expenditure Classification

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