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Difficulty: Very hardRecurrent and Capital Expenditure Classification

The Ministry of Health of a state government recorded the following financial disbursements during the fiscal year:

1. Construction of a specialized maternity clinic: ₦45,000,000
2. Purchase of diagnostic imaging equipment (expected useful lifespan of 8 years): ₦18,000,000
3. Complete engine replacement and structural overhaul of hospital fleet vehicles to extend their operational life by 6 years: ₦7,500,000
4. Monthly payment of medical staff salaries and personnel allowances: ₦14,000,000
5. Routine maintenance, fueling, and minor repairs of hospital vehicles: ₦3,200,000
6. Purchase of consumable office stationery and medical cleaning supplies: ₦1,800,000

What is the total amount to be classified as Capital Expenditure for the fiscal year?

  1. ₦70,500,000Answer
  2. B
    ���63,000,000
  3. C
    ₦26,500,000
  4. D
    ₦84,500,000

Answer

The total amount to be classified as Capital Expenditure is ₦70,500,000.
Capital expenditure in public sector accounting includes payments for acquiring fixed/non-current assets or substantial enhancements that prolong the useful life of existing assets. Here, the clinic construction (₦45,000,000), diagnostic equipment (₦18,000,000), and major vehicle overhaul (₦7,500,000) all provide long-term utility, totaling ₦70,500,000.

Step-by-Step Solution

1
Identify items that constitute Capital Expenditure in public sector accounting.
Capital items are long-term assets or major expenditure extending asset lifespan: Construction of specialized maternity clinic (₦45,000,000), Purchase of diagnostic imaging equipment (₦18,000,000), and Complete engine replacement and structural overhaul of hospital fleet vehicles (₦7,500,000).
Capital expenditure creates long-term benefits, acquires non-current assets, or enhances the existing asset's capacity and useful life.
2
Identify items that constitute Recurrent Expenditure.
Recurrent items are operational and day-to-day running expenses: Staff salaries and allowances (₦14,000,000), Routine vehicle maintenance and fueling (₦3,200,000), and Office stationery and cleaning supplies (₦1,800,000).
Recurrent expenditure covers ongoing operational costs consumed within the current fiscal period.
3
Sum all Capital Expenditure items.
Total Capital Expenditure = ₦45,000,000 + ₦18,000,000 + ₦7,500,000 = ₦70,500,000.
Adding together all disbursements that meet the capital expenditure criteria yields the grand total.

Key Concept

Capital Expenditure versus Recurrent Expenditure Classification in Public Sector Accounting
Estimated Time:2m 0s
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Topics

Recurrent and Capital Expenditure Classification

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