Para 3.16.27 — MSO (Audit)
Original Rule Text
3.16.27 The financial and accounting conception of capital expenditure is imported from commercial theory and practices, 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 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.
# E. Sources for financing Capital Expenditure
What This Means
The concept of capital expenditure in government accounts is borrowed from commercial accounting practices. Its defining feature is that such expenditure is recorded outside the government's Revenue Account. Capital heads of account exist to show the financial results of special undertakings using generally accepted commercial principles, helping to determine service costs and making the full financial implications of government policy transparent.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Capital expenditure concept is imported from commercial accounting theory
- 2Capital expenditure is recorded outside the Revenue Account of Government
- 3Capital heads enable display of financial results on commercial accounting principles
- 4The purpose is cost ascertainment and policy transparency
Practical Example
The government sets up a new printing press as a commercial undertaking. By opening capital heads of account, the Finance Department can track all investment costs separately from day-to-day revenue spending. This allows the government to compute the total cost of the printing service, compare it against revenue earned, and present Parliament with a clear picture of whether the press is financially viable.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
Why is commercial theory relevant to government accounting?▼
What does 'outside the Revenue Account' mean?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.