Insurance claim received on account of machinery damaged completely by fire ________________.

Capital receipt

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Revenue receipt

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Capital expenditures

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Revenue expenditures

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Solution

The correct option is A Capital receipt
Capital receipt - Capital receipts are funds received by a business which are not revenue in nature & lead to an overall increase in the total capital of a company.These are funds generated from non-operating activities of a business hence arenotshown inside theincome statementinstead they areshown inside a balance sheet.
They are non-recurring in nature which means that they don’t occur regularly and can’t be used for distribution of profits. Unlike revenue receipts which can be used to create reserves, capital receipts are not used to create reserve funds.
Insurance claim received on account of machinery damaged completely by fire is a capital receipt as this receipt is not in the normal course of business.

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Similar questions

Q. A manufacturing company spent the following amounts on the import and installation of a machine:
Freight =

R s .50, 000

Insurance premium =

R s .1, 050

Replacement of a part damaged in transit not covered under insurance policy =

R s .6, 000

Based on the above data, capital expenditure would be _____________.

Q. A manufacturing company spent the following amounts on the import and installation of machine.

A. Rs. 50,000	Price of the machine
B. Rs. 5,000	Freight
C. Rs. 1,050	Insurance premiun
D. Rs. 6,000	Replacement of a part damaged intransit, not covered under the insurance policy

Based on the data, capital expenditure would be:

Objective type Questions
Classify the following accounts under the types of personal, Real and Nominal account.

1) Life insurance premium A/c
2) Mr. Kulkarnis’s Capital A/c
3) Goods A/c
4) Freight A/c
5) Wages A/c
6) Goodwill A/c
7) Copyright A/c
8) Outstanding income A/c
9) Bank charges A/c
10) Outstanding expenses A/c
11) Sundry income A/c
12) Income receivable A/c
13) Export duty A/c
14) Furniture A/c
15) Import duty A/c
16) Free sample distribution A/c
17) Sundry expenses A/c
18) Discount A/c
19) Drawings A/c
20) Fixed deposit A/c
21) Profit on sale of furniture A/c
22) Office equipment A/c
23) Bank of India A/c
24) Machinery A/c
25) Carriage Outward A/c
26) Loss on sale of machinery A/c
27) Loan A/c
28) Deposits with MSEB
29) Loss by fine A/c
30) Legal expenses A/c

Q. Classify the following expenditures as intermediate consumption expenditure and final consumption expenditure.
(i) Expenditure on research and development by Tata.
(ii) Insurance premium paid by a firm to an insurance company.
(iii) Insurance premium paid by households to an insurance company.
(iv) Expenditure on repairs and maintenance of plant and machinery.
(v) Expenditure incurred by a firm on purchase of equipments.
(vi) Advertising expenditure incurred by Airtel on promotion of Its products.
(vii) Business expenses of the employees on tour and entertainment.

On 1st January, 2013 A Ltd, company purchased machinery for Rs. 20,00,000. Depreciation is provided at15% per annum on diminishing balance method. On 1st March, 2015 $\frac{1}{4}$ of machinery was damaged by fire and Rs. 40,000 machinery were received from the insurance company in full settlement. On 1st September, 2015 another machinery was purchased by the company for Rs.15,00,000. Write up the machinery account from 2015 to 2016. Books are closed on 31st December, every year.

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