Rule 102 of The General Financial Rules 2017 Capital Expenditure Recoveries
Original Rule Text
Visual Summary
Funds received on capital account.
Used to decrease relevant Major Head expenditure.
May be taken to Revenue if rules permit.
Executive Summary
Rule 102 of the General Financial Rules, 2017, outlines the treatment of receipts and recoveries that represent expenditure previously debited to a Capital Major Head. These amounts are generally used to reduce the expenditure under the concerned Major Head. However, an exception exists where, based on specific departmental allocation rules, such receipts may instead be credited to the Revenue account. This rule ensures proper accounting and management of capital-related financial transactions.
In-Depth Analysis of the Rule
Introduction: Rule 102 provides crucial guidance on how government departments should handle funds received from capital accounts that are essentially recoveries of past capital expenditures. This ensures clarity and consistency in financial reporting.
Breakdown of the Rule:
- Core Principle: When a department receives funds on a Capital Account that are recoveries of expenditure previously debited to a Capital Major Head, these funds must generally be used to reduce the expenditure under that specific Major Head. This practice ensures that the net capital outlay is accurately reflected.
- Purpose: The primary objective is to prevent the overstatement of capital expenditure and to maintain a transparent accounting of government assets and liabilities. It ensures that the financial records accurately show the true cost of capital projects after accounting for any recoveries.
- Exception for Revenue Allocation: An important caveat to this rule is that if the specific rules of allocation applicable to a particular department permit, such receipts and recoveries may instead be taken to the Revenue account. This provides flexibility, acknowledging that different departmental mandates might require varied accounting treatments for certain types of recoveries.
Practical Example: Consider a government department that invested in constructing a new office building, debiting the expenditure to a Capital Major Head. Later, due to a change in plans, some surplus construction materials were sold, or a portion of the construction cost was recovered from a contractor due to a contractual adjustment. According to Rule 102, the funds received from selling the surplus materials or the recovery from the contractor would typically be used to reduce the original expenditure recorded under the Capital Major Head for the building project. However, if the department’s specific financial regulations allow, these recovered funds could, in certain circumstances, be credited to its Revenue account instead.
Related Provisions
Understanding Rule 102 is enhanced by examining related provisions within the General Financial Rules, 2017:
- Rule 98 of The General Financial Rules 2017 Capital Expenditure: This rule defines what constitutes capital expenditure, providing context for the recoveries discussed in Rule 102.
- Rule 99 of The General Financial Rules 2017 Capital Revenue Allocation Principles: This rule outlines the general principles for allocating expenditure between capital and revenue, which is directly relevant to the exception clause in Rule 102.
- Rule 101 of The General Financial Rules 2017 Capital Receipts Construction Reduction: This rule specifically addresses capital receipts during construction and their utilization in reducing capital expenditure, offering a parallel to the principles in Rule 102.
Learning Aids
Mnemonics
- R.C.E.R.E.R. – Recoveries on Capital Expenditure Reduce Expenditure Revenue Exception.
Process Flowchart
Multiple Choice Questions (MCQs)
1. According to Rule 102 of the General Financial Rules, 2017, what is the primary treatment for receipts and recoveries representing expenditure previously debited to a Capital Major Head?
- A) They are credited to the Contingency Fund.
- B) They are taken in reduction of expenditure under the Major Head concerned.
- C) They are transferred to the Public Account.
- D) They are used to increase the budget allocation for the next financial year.
Show Answer
Correct Answer: B) They are taken in reduction of expenditure under the Major Head concerned.
2. Under Rule 102 of the General Financial Rules, 2017, when can receipts and recoveries on Capital Account be taken to Revenue?
- A) Always, at the discretion of the Accounts Officer.
- B) Only when specifically authorized by the Ministry of Finance.
- C) When the rules of allocation applicable to a particular department permit.
- D) Never, as it would violate accounting principles.
Show Answer
Correct Answer: C) When the rules of allocation applicable to a particular department permit.
3. Rule 102 of the General Financial Rules, 2017, primarily deals with the accounting treatment of which type of financial transaction?
- A) Recurring revenue expenditure.
- B) Non-tax revenue collections.
- C) Recoveries of capital expenditure.
- D) Advances from the Contingency Fund.
Show Answer
Correct Answer: C) Recoveries of capital expenditure.
4. What is the effect of taking receipts and recoveries in reduction of expenditure under a Major Head, as per Rule 102 of the General Financial Rules, 2017?
- A) It increases the overall budget deficit.
- B) It inflates the reported capital expenditure.
- C) It accurately reflects the net capital outlay.
- D) It requires a supplementary grant from Parliament.
Show Answer
Correct Answer: C) It accurately reflects the net capital outlay.
5. If a department recovers funds related to a previous capital debit, and its specific allocation rules do NOT allow these funds to be taken to Revenue, how should they be treated according to Rule 102 of the General Financial Rules, 2017?
- A) They must be deposited into the Public Account.
- B) They should be used to reduce the expenditure under the relevant Capital Major Head.
- C) They are to be held in a suspense account indefinitely.
- D) They must be remitted to the Ministry of Finance.
Show Answer
Correct Answer: B) They should be used to reduce the expenditure under the relevant Capital Major Head.
Frequently Asked Questions (FAQs)
What is the main purpose of Rule 102 of the General Financial Rules, 2017?
Rule 102 primarily governs how receipts and recoveries related to capital expenditure are accounted for. Its main purpose is to ensure that such recoveries are generally used to reduce the original capital expenditure, thereby reflecting the net cost accurately.
Can recoveries of capital expenditure ever be credited to the Revenue account under Rule 102 of the General Financial Rules, 2017?
Yes, Rule 102 provides an exception. If the rules of allocation specific to a particular department explicitly permit, then such receipts and recoveries can be taken to the Revenue account instead of reducing the Capital Major Head expenditure.
How does Rule 102 of the General Financial Rules, 2017, contribute to financial management?
By stipulating the proper accounting treatment for capital expenditure recoveries, Rule 102 helps maintain financial order, prevents overstatement of capital outlays, and ensures transparency in government accounts, aligning with principles of sound financial management.
Key Takeaways
- Rule 102 dictates that recoveries of previously debited capital expenditure generally reduce the relevant Capital Major Head.
- An exception allows these recoveries to be credited to Revenue if departmental allocation rules permit.
- The rule ensures accurate reflection of net capital outlay and proper financial accounting.
- It highlights the importance of specific departmental rules in financial allocation decisions.
Conclusion
Rule 102 of the General Financial Rules, 2017, is a fundamental provision for the meticulous accounting of capital expenditure recoveries. By clearly defining how these receipts should be treated—primarily as a reduction of the original capital debit, with specific exceptions for revenue allocation—it reinforces principles of transparency and accuracy in government financial reporting. Adherence to this rule is crucial for maintaining a true and fair view of the government’s financial position and ensuring responsible resource management.