Para 4.9 — MSO (A&E)
Original Rule Text
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.
(a) Revenue
(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.
What This Means
The concept of capital expenditure in government accounts is borrowed from commercial accounting practice. The core idea is that capital expenditure should not be met from revenue or profits. In government, classifying something as capital expenditure justifies recording it outside the Revenue Account. Capital heads of account exist to show the financial results of special undertakings using accepted commercial principles or simpler conventional methods.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Government capital expenditure concepts come from commercial accounting theory
- 2Capital expenditure should not be funded from revenue/profits — this is the essential principle
- 3Capital classification justifies recording expenditure outside the Revenue Account
- 4Capital heads help exhibit financial results of special government undertakings
- 5The exhibition can follow commercial principles or simpler conventional methods
- 6The purpose is to show full financial implications of policy decisions clearly
Practical Example
A state government runs a commercial irrigation corporation. By opening separate capital heads, the AG can track the corporation's total capital investment (Rs. 2,000 crore), annual revenue (Rs. 150 crore), annual expenses (Rs. 100 crore), and net surplus (Rs. 50 crore) — just like a private company's accounts. This tells the Legislature whether the project is commercially viable and whether the state's investment is generating adequate returns.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
Why are capital heads of account important?▼
Does government capital accounting follow commercial standards exactly?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.