2. Capital and Revenue Capital income: the term capital income means an income which does not grow out of or pertain to the running of the business proper. It is synonymous to the term capital gain for example if a building costing Rs. 10,000 purchased by a firm for it use is sold for Rs. 15,000, Rs. 5,000 will be taken as a capital profit. However, only the profit realized over and above the cost of the fixed asset should be taken as a capital profit. Any profit over the book value is treated as revenue profit since depreciation against the fixed asset has already been charged to the P & L A/c, of the earlier years and any profit which is now made is simply recovery of excess provision for depreciation made in the earlier years. According to the I.T. rules also a plant originally purchased for Rs. 10,000 standing in the books at Rs. 6000 is sold for Rs. 12000, there is a profit of Rs. 6000 on the sale of this plant. Out of this profit, Rs. 2,000 (i.e., the amount over and above the cost of the asset) should be taken as capital profit while the balance of Rs. 4,000 should be taken as revenue profit. Capital profit is transferred to the Capital Reserve and is shown in the Balance Sheet on the Liabilities side while revenue. Profit is credited.-------------------
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6. Exercise Name: Indicate the classification of each of the items in the worksheet indicating the items that cannot be classified Building Share Capital Cash Debtors Creditors Equipment Land Stock Goodwill Furniture Delivery Vehicle Repayments Advances Received Liabilities Assets Items
7. Exercise – A tallied Balance Sheet? Using the data given above, prepare a proper balance sheet 11.7 4.0 18.0 24.0 8.0 6.3 72.0 Taxes payable Cash Equipment Loan payable Accounts receivable Vehicles Liabilities 22.1 35.7 14.0 0.2 72.0 Owners’ equity Merchandise Accounts payable Interest payable (Rs. 0000) Assets
8. Exercise – Ranjan Mahapatra prepared the following tallied balance sheet of Balances Ltd. In a five minutes quiz administered in a Management Accounting class. Balance Sheet of Balances Ltd. for the period ending 31.3-93 Using the data given in the “balance sheet” prepared by Ranjan Mohapatra, prepare a proper balance sheet 11.7 4.0 18.0 24.0 8.0 6.3 72.0 Taxes payable Cash Equipment Loan payable Accounts receivable Vehicles Liabilities 22.1 35.7 14.0 0.2 72.0 Owners’ equity Merchandise Accounts payable Interest payable (Rs. 0000) Assets