Question

State with reasons whether the following receipts would be treated as Capital or Revenue:-
(a) ₹ 5,000 received from a customer whose account was previously written off as bad.
(b) ₹ 20,000 received from sale of old machine.
(c) ₹ 2,60,000 received from sale of stock-in-trade.
(d) ₹ 5,00,000 is contributed by a partner as capital.
(e) Took a loan of ₹ 10 Lac from Punjab National Bank.
(f) Received ₹ 4 Lac as subsidy from State Government.
(g) Received ₹ 8 Lac as grant from State Government for the construction of quarters for the staff.

Answer 1

1. It is a revenue receipt as it is received in normal course of business.
2. It is a capital receipt as it is a capital gain which arose by selling of machinery.
3. It is a revenue receipt as it is received in normal course of business over exchange of goods.
4. It is a capital receipt as it will improve the financial position of the company of the company.
5. It is a capital receipt as it will enhance the productivity of the company.
6. It is a revenue receipt as it is received regularly from the government.
7. It is a capital receipt as it is received for construction and will it will result in increasing the earning capacity of the firm.