Rule 84 of The General Financial Rules 2017 Capital or Revenue Expenditure
Original Rule Text
Visual Summary
Significant spending for permanent tangible assets or enhancing existing ones.
Day-to-day running, upkeep, repair, establishment costs.
Capital and Revenue expenditure must be shown separately in the Accounts.
Executive Summary
Rule 84 of the General Financial Rules, 2017, defines and distinguishes between Capital and Revenue Expenditure. Capital expenditure involves acquiring or enhancing permanent tangible assets, while Revenue expenditure covers day-to-day maintenance, repair, and operational costs. The rule mandates that these two types of expenditures be accounted for separately.
In-Depth Analysis of the Rule
Introduction: Rule 84 provides a crucial framework for classifying government expenditure, distinguishing between investments that create long-term assets and costs associated with routine operations. This distinction is fundamental for accurate financial reporting and effective resource management.
Breakdown of the Rule:
- Capital Expenditure: This category includes significant spending aimed at acquiring tangible assets of a permanent nature. These assets are intended for use within the organization and not for ordinary sale. It also covers expenditure that enhances the utility of existing assets. The core purpose is long-term benefit and asset creation.
- Revenue Expenditure: In contrast, Revenue expenditure encompasses subsequent charges related to the maintenance, repair, upkeep, and working expenses necessary to keep assets in a running order. It also includes all other expenses incurred for the day-to-day functioning of the organization, such as establishment and administrative costs. These are typically recurring operational costs.
- Accounting Requirement: A key mandate of Rule 84 is that both Capital and Revenue expenditures must be shown separately in the government accounts. This separation ensures transparency and clarity in financial statements.
Practical Example:
Consider a government department. If it purchases a new office building, the cost would be classified as Capital expenditure because it involves acquiring a permanent tangible asset. However, the monthly electricity bills, routine cleaning services, and staff salaries for that building would all fall under Revenue expenditure, as they are necessary for the day-to-day running and maintenance of the office.
Related Provisions
Understanding Rule 84 is enhanced by examining related provisions that further elaborate on expenditure classification and accounting:
- Rule 78 of The General Financial Rules 2017 Classification of Transactions in Government Accounts: This rule details the general principles for classifying transactions in government accounts, often referencing functions, programs, and the object of expenditure, which complements the Capital/Revenue distinction.
- Rule 98 of The General Financial Rules 2017 Capital Expenditure: This rule provides further specific guidance and principles for what constitutes Capital expenditure and how it should be treated in government accounts, offering a deeper dive into the subject.
Learning Aids
Mnemonics
- CARE: Capital for Assets, Revenue for Expenses. This helps remember the core purpose of each expenditure type.
Process Flowchart
Multiple Choice Questions (MCQs)
1. According to Rule 84 of the General Financial Rules, 2017, which of the following best describes Capital expenditure?
- A) Expenses for day-to-day office supplies.
- B) Charges for routine maintenance and repairs.
- C) Significant expenditure for acquiring permanent tangible assets.
- D) Salaries and administrative expenses.
Show Answer
Correct Answer: C
2. Under Rule 84 of the General Financial Rules, 2017, what is a key characteristic of Revenue expenditure?
- A) It aims to create new, permanent assets.
- B) It is primarily for enhancing the utility of existing assets.
- C) It includes costs for maintenance, repair, and day-to-day running of the organization.
- D) It is always a one-time, non-recurring cost.
Show Answer
Correct Answer: C
3. Rule 84 of the General Financial Rules, 2017, mandates a specific accounting practice for Capital and Revenue expenditure. What is it?
- A) They must be consolidated under a single head.
- B) They must be shown separately in the Accounts.
- C) Only Capital expenditure needs to be recorded.
- D) Only Revenue expenditure needs to be recorded.
Show Answer
Correct Answer: B
4. Which of the following would typically be classified as Capital expenditure according to Rule 84 of the General Financial Rules, 2017?
- A) Payment for monthly internet services.
- B) Purchase of a new government vehicle for long-term use.
- C) Annual subscription for software licenses.
- D) Utility bills for a government office.
Show Answer
Correct Answer: B
5. As per Rule 84 of the General Financial Rules, 2017, expenses incurred for the day-to-day running of an organization, including establishment and administrative expenses, are classified as:
- A) Capital expenditure.
- B) Contingency expenditure.
- C) Revenue expenditure.
- D) Investment expenditure.
Show Answer
Correct Answer: C
Frequently Asked Questions
What is the primary distinction between Capital and Revenue expenditure under Rule 84 of the General Financial Rules, 2017?
The primary distinction is that Capital expenditure is for acquiring or enhancing permanent tangible assets, while Revenue expenditure is for maintaining existing assets and covering day-to-day operational costs.
Why is it important to show Capital and Revenue expenditure separately in accounts as per Rule 84 of the General Financial Rules, 2017?
Separating these expenditures provides a clear picture of an organization’s financial health, distinguishing between investments in long-term assets and costs associated with daily operations, which is crucial for financial reporting and decision-making.
Key Takeaways
- Rule 84 defines Capital expenditure as significant spending on acquiring or enhancing permanent tangible assets.
- Revenue expenditure covers ongoing costs like maintenance, repairs, and daily operational expenses.
- The rule mandates separate accounting for Capital and Revenue expenditure for clarity and proper financial management.
Conclusion
Rule 84 of the General Financial Rules, 2017, is fundamental for accurate financial classification, ensuring that government entities clearly distinguish between investments in long-term assets and the costs of daily operations. This clarity is vital for transparent financial reporting and informed decision-making.