Question

Amount received as compensation under an agreement for the loss of future profits is a _______________.

• A. Deferred revenue receipts
• B. Capital receipts
• C. Revenue receipts
• D. None of the above

Answer 1

Answer: (C)

Revenue receipts

An amount received as a compensation for loss of future profit under an agreement is a revenue receipt But an amount received in consideration of the surrender of certain rights under an agreement is a capital receipt, because such rights are capital assets which have been given up. For e.g., pension received by a former employee is a revenue receipt as it is in the nature of compensation of past services. But a lump sum amount received as commuted pension is a capital receipt being in the nature of compensation for surrendering the right to pension.