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Difficulty: MediumRecurrent and Capital Expenditure Classification

The Ministry of Housing and Urban Development of a state government recorded the following financial transactions during a fiscal year:

- Payment of civil servants' salaries and allowances: ₦14,500,000₦14,500,000
- Purchase of office stationery and consumables: ₦2,300,000₦2,300,000
- Servicing and routine repairs of operational vehicles: ₦1,800,000₦1,800,000
- Construction of a new low-cost residential estate: ₦68,000,000₦68,000,000
- Procurement of heavy-duty excavators for site preparation: ₦35,000,000₦35,000,000

What is the total recurrent expenditure of the ministry for the fiscal year?

  1. A
    ₦16,800,000
  2. ₦18,600,000Answer
  3. C
    ₦53,600,000
  4. D
    ₦103,000,000

Answer

The total recurrent expenditure for the ministry is ₦18,600,000.
The total recurrent expenditure is ₦18,600,000 because recurrent expenditure in public sector accounting consists of ongoing operational expenses such as salaries (₦14,500,000), stationery consumables (₦2,300,000), and routine maintenance of vehicles (₦1,800,000). Adding these three amounts yields ₦18,600,000.

Step-by-Step Solution

1
Identify recurrent expenditure items
Recurrent expenditures are continuous, day-to-day operational costs incurred to maintain government services. In this scenario, they comprise salaries and allowances (₦14,500,000), office stationery and consumables (₦2,300,000), and servicing and routine repairs of operational vehicles (₦1,800,000).
Recurrent expenditure covers operational overheads, personnel costs, and routine maintenance that do not result in the creation of permanent fixed assets.
2
Identify and exclude capital expenditure items
Construction of a new residential estate (₦68,000,000) and procurement of heavy-duty excavators (₦35,000,000) are capital expenditure items.
Capital expenditures are non-recurring outlays that acquire, construct, or enhance long-term physical assets.
3
Calculate the total recurrent expenditure
₦14,500,000 + ₦2,300,000 + ₦1,800,000 = ₦18,600,000
Summing all identified recurrent outlay items gives the correct total recurrent expenditure for the fiscal year.

Key Concept

Classification of Government Recurrent and Capital Expenditure
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Topics

Recurrent and Capital Expenditure Classification

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