Para 4.9 — MSO

4.9 The financial and accounting conception of capital expenditure is imported from commercial theory and practice, and an essential feature is that expenditure of a capital nature is not met from the revenue or profits of a concern. In the sphere of Government accounts the classification of expenditure as capital expenditure affords prima facie justification for recording it outside the Revenue account of Government. The essential purpose of the opening of capital heads of account is to facilitate the exhibition of the financial results of any special undertaking on the basis of generally accepted commercial

(d) In theory it is legitimate to make capital bear the charges for interest on money borrowed to finance the construction of a new project before the project becomes revenue earning. In fact, however, a Government project is only part of the operations of Government and it may be sound financial administration to meet interest charges from other revenue during the process of construction. The charge of interest to capital in Government accounts is justified only when there would be undue disturbance in the Government’s budgetary position by taking interest to revenue. The writing back of capitalised interest should be the first charge on any capital receipts or surplus revenues derived from a project when opened for working.

(e) Capital receipts insofar as they relate to expenditure previously debited to capital should be accounted as reduction of expenditure. They should not be credited to the ordinary revenue account of the undertaking.

(b) Borrowings, either principles or in some more simple conventional manner, either that the cost of a service may be ascertained or that the full financial implications of any policy may be made clear.