The Maharashtra government incurred huge expenses for collection of taxes from the residents. What will the transaction of incurring expenses be termed as?
Answer & explanation
Correct answer: option 3
The correct answer is option 3: Revenue expenditure as expenses on collection has been made
Revenue expenditure are those expenses which neither creates assets nor result in reduction of liability. For example: salaries etc. paid by the government.
In the question 2 things are being done together i.e. collection of tax and other is expenses incurred for the process. Collection of tax - Revenue receipt whereas, Expenses incurred - Revenue expenditure.
Expenses incurred for the collection of taxes are considered revenue expenditure because they are part of the routine operating costs associated with managing the government’s current operations. These expenditures do not create or increase assets but are necessary for generating revenue.