Question

A State Government obtains a loan from a commercial bank to build a new highway. This loan is a:

• A. Revenue receipt, as it is a current income for the state.
• B. Capital expenditure, as it is used for infrastructure development.
• C. Revenue expenditure, as it is a recurring cost for the state.
• D. Capital receipt, as it increases the state's liability.

Answer 1

Answer:

D. Capital receipt, as it increases the state's liability.

• A loan from any source, including a commercial bank, must be repaid, thereby increasing the government's liabilities and classifying it as a capital receipt.