Government grant is classified by NPOs as:

Can be both Revenue and Capital depending on the purpose of the receipt

The correct answer is option 3- Can be both Revenue and Capital depending on the purpose of the receipt.

Government Grant: Schools, colleges, public hospitals, etc. depend upon government grant for their activities. The recurring grants in the form of maintenance grant is treated as revenue receipt (i.e. income of the current year) and credited to Income and Expenditure account. However, grants such as building grant are treated as capital receipt and transferred to the building fund account. It may be noted that some Not-for-Profit organisations receive cash subsidy from the government or government agencies. This subsidy is also treated as revenue income for the year in which it is received.