compensation received on loss of source of income is Capital receipt. while compensation received for loss of future profit is Revenue receipt. can anyone pls give example for both n elaborate the same?
30 July 2008
Capital receipts are those which are fixed in nature and does not affect the profitibility. e.g. capital intoduction, sale proceeds of fixed assets. They affect the balance sheet by either appearing on the credit side or by reduction in the value of some asset. Revenue receipts are the one which affect the profitibility of the company like day to day incomes. They appear in the credit side of P & L A/c.
The main difference between revenue receipts and capital receipts is that revenue receipts are recurring in nature, which the government can expect to receive year after year, whereas capital receipts are a kind of one-time income.
On the basis of above explanations we can say that Compensation receiveed on Loss of Source of Income i.e. not recurring in nature is CAPITAL RECEIPT and Loss of future profit i.e. recurring in nature is REVENUE receipt.
30 July 2008
U r running a Textile mill. U have insured ur plant and machinery. and u have also insured for the loss of profit on sales which could not be made for some period due to fire in the factory.
Now fire occured in ur factory, everything was fired including plant and machinery and ur business was stopped for 6 months and sales were effected for 6 months
You received compensation for Plant and machinery as well for loss of profit on sales which could not be made due to fire.
SO compensation received towards P&M is Capital Receipt where as Compensation for loss of profit is revenue receipt.