Why is recovery of loans treated as a capital expenditure?

Why is recovery of loan a capital expenditure?

(B) Repayment of loan to World Bank, foreign government, etc. is also capital expenditure because it reduces liability. Such expenditure is met out of capital receipts of the government including borrowing from public and foreign governments. It is incurred for normal running of government departments and maintenance.

Why is repayment of loan a capital receipt?

The capital receipts are loans raised by the Government from the general public. The loan thus raised is termed as market loans, or borrowings by the Government from the Reserve Bank of India and other parties through the sale of Treasury Bills.

Is recovery of loan a capital receipt or revenue receipt?

The recovery of loans is a capital receipt and does not affect the revenue receipts. Capital receipts are those receipts that either create liability or cause a reduction in the assets of the government.

What are recovery of loans?

When a borrower is unable to repay a loan, the lending institution initiates a loan recovery process. RBI guidelines for loan recovery ensure that the process is beneficial to the lender while also respecting the borrower’s legal rights and obligations.

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What are capital recovery factors?

From Wikipedia, the free encyclopedia. A capital recovery factor is the ratio of a constant annuity to the present value of receiving that annuity for a given length of time.

What is a capital recovery factor used for?

The capital recovery factor is the ratio used to determine the present value of a series of equal annual cash payments. The payments could be made weekly, monthly, quarterly, yearly, or at any other regular interval of time, and are commonly known as annuities.

Is loan repayment a capital expenditure?

Along with the creation of assets, repayment of loan is also capital expenditure, as it reduces liability.

Why expenditure is classified into capital and revenue?

The benefit of revenue expenditure is restricted to only one accounting year. For example rent, salaries, carriage outwards etc. … All the revenue expenses are to be debited to trading account or profit and loss account. Whereas the capital expenditure has to be shown as an asset in the balance sheet on assets side.

Is repayment of loan a capital receipt?

Capital receipts are loans taken by the government from the public, borrowings from foreign countries and institutes, and borrowings from the RBI. Recovery of loans given by the Centre to states and others is also included in capital receipts.

What is the reason that the capital expenditure is shown in the balance sheet?

Capital expenditure is shown in the balance sheet because a capital expenditure is considered as investment in a given company, it should be recorded as an asset on the company’s balance sheet.

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