Capital Receipts and Revenue Receipts
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Detailed Solution & Explanation
Capital Receipts and Revenue Receipts:
Receipts which are obtained in the course of normal trading operations are revenue
receipts (e.g. sale of goods, interest income etc.).
On the other hand, receipts which are not revenue in nature are capital contribution
etc.).
Subscriptions by shareholders towards share capital of a company or for purchasing
its debentures are considered by the company as capital receipts.
By the same criterion, contributions by partners or proprietors to capital of their
business are capital receipts.
Sale value of fixed assets is also a capital receipts since these are distinguishable
from revenue receipts, e.g., those from sale of merchandise, rent on property,
interest on investment, professional fee for services rendered, etc.
It will be evident that capital receipts emanate out of a fund already held or arise on
conversion of an asset, whereas revenue receipts flow from personal exertion, use of
a capital asset or from sale or transfer of floating assets like goods.
Revenue and capital receipts are recognized on accrual basis as soon as the right of
receipt is established.
Revenue receipts are credited to the Profit and loss account.
On the other hand, capital receipts are not directly credited to Profit and loss account.
For example, when a fixed asset is sold, the entire capital receipts is not credited to
Profit and Loss Account. Profit or loss on sale of fixed assets is calculated and
recorded in Profit and Loss Account.
About This Chapter: Theoretical Framework
Paper
Paper 1: Accounting
Weightage
5-10%
Key Topics
Policies, Standards (Ind AS), Vocabulary
This chapter covers Policies, Standards (Ind AS), Vocabulary and is part of Paper 1: Accounting in the CA Foundation exam.
View Official ICAI SyllabusExam Strategy Tip
This topic carries 5-10% weightage. Focus on understanding core concepts rather than memorizing.
Key Concepts to Understand
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