Question

Statement 1: Recovery of loans is a non-debt creating capital receipt.

Statement 2: Recovery of loans cause a reduction in assets of the government.

Options

• Statement 1 is true and statement 2 is false.

• Statement 2 is true and statement 1 is false.

• Both the statements are true.

• Both the statements are false.

Answer 1

Both the statements are true.

Explanation:

Both statements are correct. Capital receipts are those that either increase liabilities or reduce the government's assets. The government may provide loans to various state governments and union territories. The recovery of such a loan is considered capital reception because it diminishes the government's assets.