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Difficulty: MediumRecurrent and Capital Expenditure Classification

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

- Servicing and routine maintenance of operational vehicles: ₦1,200,000
- Construction of a modern waste recycling plant: ₦45,000,000
- Payment of monthly salaries to environmental officers: ₦18,500,000
- Acquisition of specialized laboratory testing equipment: ₦12,000,000
- Purchase of office stationery and consumables: ₦800,000

What is the total recurrent expenditure of the Ministry for the financial year?

  1. ₦20,500,000Answer
  2. B
    ₦32,500,000
  3. C
    ₦57,000,000
  4. D
    ₦77,500,000

Answer

The total recurrent expenditure of the Ministry for the financial year is ₦20,500,000.
The sum of ₦20,500,000 is correct because recurrent expenditure includes ongoing administrative and maintenance costs such as vehicle servicing (₦1,200,000), officers' salaries (₦18,500,000), and office stationery (₦800,000). Construction of the plant and purchase of specialized laboratory equipment are capital expenditures.

Step-by-Step Solution

1
Identify recurrent expenditure items
Recurrent items are routine operational expenses: vehicle maintenance (₦1,200,000), monthly salaries (₦18,500,000), and office stationery (₦800,000).
Recurrent expenditures are day-to-day running costs incurred in maintaining government services within a financial year.
2
Identify capital expenditure items to exclude
Capital items are long-term asset acquisitions: waste recycling plant (₦45,000,000) and laboratory equipment (₦12,000,000).
Capital expenditures result in the creation or acquisition of non-current assets with benefits extending beyond one financial year.
3
Sum the recurrent expenditure items
₦1,200,000 + ₦18,500,000 + ₦800,000 = ₦20,500,000.
Adding all operational running costs gives the total recurrent expenditure.

Key Concept

Recurrent Expenditure Classification in Public Sector Accounting
Estimated Time:1m 30s
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Topics

Recurrent and Capital Expenditure Classification

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