Which of the following statements is true?

A) Wage bill of the government is a capital expenditure.

B) Disinvestment by the government in a company is a capital receipt.

The correct answer is Option 4. 

Key Points

• Disinvestment by the government in a company can be either a capital receipt or a revenue receipt, depending on the nature of the transaction.
• If the government sells its equity shares in a company to the public or to another entity, the proceeds from the sale are considered a capital receipt.
• This is because the government is selling a capital asset (i.e., its ownership stake in the company) and receiving cash in return.
• However, if the government sells its goods or services to a company, such as land or buildings, the proceeds from the sale would be considered a revenue receipt.
• This is because the government is receiving cash for the sale of goods or services, which is a normal business transaction and not the sale of a capital asset.
• In summary, the classification of disinvestment receipts as capital or revenue depends on the nature of the transaction and the asset being sold.

​Additional Information

•  In accounting and finance, capital expenditures refer to investments made by a company or government that are expected to provide long-term benefits, such as the acquisition of fixed assets like land, buildings, equipment, and machinery.
• These assets are expected to generate revenue or other economic benefits over a long period of time.
• On the other hand, the wage bill of the government is typically considered an operating expenditure because it represents the cost of the government's day-to-day operations.
• This includes the salaries and wages paid to government employees, which are necessary to keep the government functioning and to provide public services.
• While there may be instances where the government's wage bill is considered a capital expenditure, such as when it is tied to a specific capital project, such as the construction of a new building or infrastructure project, in general, it is considered an operating expenditure rather than a capital expenditure.