Question

The premium on issue of shares must be treated as __________.

• A. Revenue Receipt
• B. Deferred Revenue Receipt
• C. Capital Receipt
• D. Capital Loss

Answer 1

The correct option is C Capital Receipt

Capital Receipt:-

These have a nature of non-recurrence, besides that, they are situated in the balance sheet in the liabilities portion of them. The capital receipt is always in the interchange for the income. The capital receipt is a kind of cash-flow in the business that does not occur over and over again and this eventually, leads to the creation of liabilities in the future and also, the decrement of assets takes place in the future.

All of the capital receipts are free from taxation unless there is a provision to tax it. Various types of Gifts and loans are the types of the capital receipts that do not attract tax and are tax-free. So, in addition to non-recurring, Capital receipts are those non-routine receipts which either becomes a load and responsibility or cause a vivid depletion in the assets of the government or any organization and business.

The following sources are the generators of the capital receipt:

• Additional capital and mentioned assets introduced by the owner or the possessor

• Debentures and the other issues of debt instruments

• Loans borrowed from a bank or from a financial institution.

• Various insurance Claims.

• Issue of Shares

So, basically, capital receipts are those that are the derivation of the not so normal operations of a business. Besides that, the effect of capital receipt is depicted in the balance sheet. These receipts are not at all a part of normal operations of government business. For example, a sale of fixed assets, etc.