GS Question

Capital Budget refers to the budgetary allocation for long-term investment projects, such as acquiring land, buildings, machinery, or any other asset that will yield benefits over a long period of time. It focuses on capital expenditure and aims to improve the overall capacity of the organization. Capital Budgets are usually prepared for a multi-year period, typically ranging from three to five years, and are used to plan and finance major capital projects.

On the other hand, Revenue Budget focuses on the day-to-day operational expenses and income of the organization over a specific period, usually a year. It includes all revenue sources, such as sales, fees, grants, etc., as well as the expenses required to operate the organization, including salaries, utilities, marketing, supplies, etc. Revenue Budgets aim to maintain the day-to-day operations and functioning of the organization efficiently.

Components of Capital Budget:

1. Capital Expenditures: This includes the investment in fixed assets or long-term assets, such as land, buildings, machinery, equipment, etc.

2. Replacement and Modernization: This component accounts for the cost of replacing old or obsolete assets with new and more efficient ones.

3. Expansion Projects: It includes investments made to expand the organization's capacity, such as opening new branches, increasing production capacity, or entering new markets.

4. Research and Development: This component covers the investment in research and development activities to improve products or develop new ones.

5. Special Projects: It includes any unique or one-time projects that require significant capital investment, such as mergers, acquisitions, or joint ventures.

Components of Revenue Budget:

1. Sales Revenue: This includes the income generated from the sale of products or services offered by the organization.

2. Grants and Donations: Revenue received from external sources, such as government grants or private donations, to support the organization's activities.

3. Fees and Charges: Income generated from providing services or charging fees for specific facilities or activities.

4. Operating Expenses: This includes all the day-to-day expenses incurred in operating the organization, such as salaries, utilities, maintenance, repairs, marketing, etc.

5. Debt Servicing: Any interest payments or debt repayments made by the organization are included in this component.

6. Surplus or Deficit: This represents the excess or shortfall of revenue over expenses, which indicates the financial health of the organization during the budget period.

In summary, while the Capital Budget focuses on long-term investments and improving the organization's capacity, the Revenue Budget deals with day-to-day operational expenses and income.