Question

Disinvestment by the government is an example of:

• A. Capital receipt
• B. Revenue receipt
• C. Capital expenditure
• D. Revenue expenditure

Answer 1

The Correct Option is A

Government disinvestment exemplifies a capital receipt. Here's why it's classified correctly:

• Capital Receipt: Funds obtained by the government that either create a future obligation to repay or diminish financial assets. Disinvestment, the sale of government stakes in public sector enterprises, reduces government ownership and is therefore a capital receipt. This asset sale is a non-recurring event impacting the government's capital asset base.
• Revenue Receipt: Government income that does not increase liabilities or decrease assets. As disinvestment reduces the government's equity holdings, it is not a revenue receipt.
• Capital Expenditure: Government spending aimed at creating assets or reducing liabilities, like infrastructure projects. Disinvestment is a receipt of funds, not an expenditure.
• Revenue Expenditure: Government costs for operational activities that do not create assets, such as salaries and subsidies. Disinvestment is not a form of expenditure.

Consequently, government disinvestment is accurately categorized as a capital receipt due to the inflow of funds from asset sales, without a recurring impact on government finances.