Rule 101 of The General Financial Rules 2017 Capital Receipts during Construction
Original Rule Text
Visual Summary
Capital receipts during construction reduce capital expenditure.
Applies to receipts related to previously debited capital expenditure.
Generally not credited to revenue account unless specified.
Executive Summary
Rule 101 of the General Financial Rules, 2017, mandates that capital receipts generated during the construction phase of a project, which relate to expenditure previously debited to capital, must be used to reduce the overall capital expenditure. Unless a specific rule or order dictates otherwise, these receipts should not be credited to the department’s or undertaking’s revenue account. This ensures proper accounting and prevents overstating revenue during project development.
In-Depth Analysis of the Rule
Introduction: Rule 101 of the General Financial Rules, 2017, provides crucial guidance on the accounting treatment of capital receipts that arise during the construction phase of a project. This rule is designed to ensure financial prudence and accurate representation of capital expenditure.
Breakdown of the Rule:
- Utilization of Capital Receipts: Capital receipts generated during the construction of a project, specifically those linked to expenditure previously debited to capital, must be used to reduce the capital expenditure. This means they offset the initial investment rather than being treated as income.
- Scope of Application: This applies to receipts “accruing during the process of construction of a project” and “relate to expenditure previously debited to Capital.”
- Exclusion from Revenue Account: A key directive is that, generally, these receipts “shall not be credited to the revenue account of the department or undertaking.” This prevents inflating the operational revenue with funds that are essentially a recovery or offset of capital costs.
- Exceptions: The rule allows for exceptions “under special rule or order of Government,” indicating that specific governmental directives can alter this default accounting treatment.
Practical Example: Imagine a government department constructing a new research facility. During construction, the department sells some surplus construction materials or receives a refund from a supplier for an overpayment on a capital item. According to Rule 101, these capital receipts should not be added to the department’s regular income (revenue account). Instead, they should be used to directly reduce the total capital cost of building the research facility. This ensures the final reported capital expenditure accurately reflects the net cost to the government.
Related Provisions
To fully understand the context and implications of Rule 101, consider these related provisions:
- Rule 98 of The General Financial Rules 2017 Capital Expenditure: Defines what constitutes capital expenditure.
- Rule 99 of The General Financial Rules 2017 Principles for Allocation of Expenditure between Capital and Revenue: Outlines the principles for distinguishing between capital and revenue expenditures.
- Rule 102 of The General Financial Rules 2017 Receipts and Recoveries Representing Recoveries of Expenditure Previously Debited to Capital Major Head: Details the treatment of recoveries of expenditure previously debited to a Capital Major Head.
Learning Aids
Mnemonics
- Construction Capital Receipts: Reduce Capital, Not Revenue.
Process Flowchart
Multiple Choice Questions (MCQs)
1. According to Rule 101 of the General Financial Rules, 2017, what is the primary use for capital receipts accruing during the construction of a project that relate to previously debited capital expenditure?
- A) To be credited to the department’s revenue account.
- B) To be utilized in reduction of capital expenditure.
- C) To be transferred to a contingency fund.
- D) To be used for new, unrelated projects.
Show Answer
Correct Answer: B
2. Under Rule 101 of the General Financial Rules, 2017, when can capital receipts during construction be credited to the revenue account of a department or undertaking?
- A) Always, as they are a form of income.
- B) Only if the project is completed ahead of schedule.
- C) Only under a special rule or order of Government.
- D) Never, under any circumstances.
Show Answer
Correct Answer: C
3. Rule 101 of the General Financial Rules, 2017, primarily deals with the accounting treatment of which type of receipts?
- A) Recurring revenue receipts from services.
- B) Capital receipts during the construction phase of a project.
- C) Grants-in-aid received from other governments.
- D) Fines and penalties collected by the department.
Show Answer
Correct Answer: B
4. If a government department receives a refund for an overpayment on construction materials for a project, how should this be treated according to Rule 101 of the General Financial Rules, 2017?
- A) As an increase in the department’s revenue.
- B) As a reduction in the project’s capital expenditure.
- C) As a deposit in the public account.
- D) As a transfer to the Ministry of Finance.
Show Answer
Correct Answer: B
5. The principle of Rule 101 of the General Financial Rules, 2017, aims to prevent:
- A) Underestimation of project costs.
- B) Overstating revenue with capital offsets.
- C) Delays in project completion.
- D) Inefficient procurement processes.
Show Answer
Correct Answer: B
Frequently Asked Questions
Q: What are “capital receipts during construction” as per Rule 101 of the General Financial Rules, 2017?
A: These refer to moneys received during the building phase of a project that are related to expenditures previously charged to the capital account. Examples include sale of surplus materials, refunds from suppliers for capital items, or compensation for damages to capital assets during construction.
Q: Why are these receipts not credited to the revenue account under Rule 101 of the General Financial Rules, 2017?
A: The rule mandates that these receipts reduce capital expenditure to ensure accurate accounting of the net cost of the capital project. Crediting them to the revenue account would artificially inflate the department’s or undertaking’s operational income, distorting financial statements.
Q: Can there be exceptions to Rule 101 of the General Financial Rules, 2017 regarding crediting capital receipts to the revenue account?
A: Yes, the rule explicitly states that exceptions can be made “under special rule or order of Government.” Without such a specific directive, the default is to reduce capital expenditure.
Key Takeaways
- Capital receipts generated during project construction must primarily be used to reduce capital expenditure.
- These receipts should generally not be credited to the revenue account of the department or undertaking.
- The rule ensures accurate reporting of the net capital cost of projects.
- Any deviation from this principle requires a specific rule or order from the Government.
Conclusion
Rule 101 of the General Financial Rules, 2017, is fundamental for maintaining transparent and accurate financial records, particularly concerning large-scale government projects. By stipulating that capital receipts during construction reduce capital expenditure rather than inflate revenue, it reinforces principles of sound financial management and accountability, ensuring that the true cost of capital assets is reflected in government accounts.