Question

If a State Government receives a loan from the Central Government, it is accounted for as a:

• A. Capital receipt, as it increases the government's liabilities.
• B. Revenue receipt, as it is income without creating a liability.
• C. A grant from the Central Government, as it is a transfer of funds.
• D. A debt write-off, as it reduces the government's debt burden.

Answer 1

Answer:

A. Capital receipt, as it increases the government's liabilities.

• Borrowing money from any source, including the Central Government, creates a future obligation to repay, which increases the government's liabilities and is a characteristic of a capital receipt.