Capital receipts are the receipts which are not received in the ordinary course of business. These are non-recurring receipts. Money obtained from the sale of fixed assetsor investments, issue of shares or debentures, loans taken are some of the examples of capital receipts. Capital receipts are shown as liability reduced from assets appearing inthe balance sheet.
Revenue receipts are receipts obtained in the normal course of business. It is a receiptagainst supply of goods or services. The money obtained from sales, interest, dividend,transfer fees etc. are examples of revenue receipts. Revenue receipts are credited to profitand loss account.
Those profits which are not earned during the regular course of business and which arenot earned on account of the day-to-day trading activities of the business are capital profits. For example, profit on sale of asset and premium received on issue of shares.These types of profits are normally not taken to profit and loss account but are shown inthe liabilities side of the balance sheet.
The losses which are not suffered during the regular course of business are called capitallosses. For example, discount on issue of shares.
1. An old machinery is purchased for Rs. 1,00,000 and Rs. 25,000 has been spent to bring it in working condition.Answer-- Both the above expenses are capital expenditures as Rs. 1,00,000 has beenspent to acquire the asset and Rs. 25,000 has been spent to make the machinery productive. The machinery will now be used for many years and its cost is Rs.1,25,000.2. A building is purchased for Rs. 10,00,000 and Rs. 1,00,000 has been spent asexpenses like brokerage, stamp duty, registration charges and on other legalexpenses.Answer-- Both the above expenditures are capital expenditures as Rs. 10,00,000 has been spent for the purchase of asset and Rs. 1,00,000 for all the incidental expensesfor buying the asset. The cost of the building is now Rs. 11,00,000.3.Repairs to building Answer-- It is revenue expenditure because it is incurred for maintaining the building. Both the reason for repairs and the amount are notimportant.