AccountsISC Class 11 · Capital and Revenue Expenditure and Receipts

Capital and Revenue Receipts, Profits and Losses: ISC Class 11 Accounts

Updated 17 October 2026 · Fact-checked

A capital receipt is money received from the owner, lenders or the sale of a fixed asset; it is not the result of ordinary trading and goes to the balance sheet. A revenue receipt arises from the normal business (sales, interest, commission) and goes to the Profit and Loss Account. A profit or loss on the sale of a fixed asset is a capital profit or loss and is not part of the trading result.

Ask 'is it from regular trading?': yes means revenue receipt to the Profit and Loss A/c; no means capital receipt, shown in the Balance Sheet.

Illustration drawn for QuestionBuddy.

Understand Capital and Revenue Receipts, Profits and Losses

Capital receipts. Receipts that change the liabilities or assets of the business and are not income of the year: capital introduced by the owner, loans and debentures raised, proceeds from sale of a fixed asset or a long-term investment, amounts received from the issue of shares, compensation for loss of an asset. Shown in the balance sheet.

Revenue receipts. Receipts from the usual activity: sales of goods, commission, interest on investments, rent received, discount received, dividends earned. Credited to Trading or Profit and Loss Account.

Capital profit. Profit not arising from the normal trading: profit on sale of fixed assets, premium on issue of shares, profit on revaluation of assets. It is not available for ordinary distribution and is credited to Capital Reserve.
Revenue profit. Profit from normal operations: gross profit, net profit, profit on sale of goods.

Capital loss. Loss on sale of fixed assets, loss by theft or fire of a fixed asset (uninsured part). It is written off against capital reserve, or, if not, shown separately.
Revenue loss. Loss from the usual running: loss due to bad debts, loss of stock, loss by fire of stock, loss on sale of goods below cost.

Tests. (1) Is the receipt from the regular operation? Revenue. (2) Does it change the owner's or lender's position, or does it follow from the sale of a fixed asset? Capital. (3) Is the gain from one-time disposal of a fixed asset? Capital profit.

Examples of treatment. Sale of machinery book value Rs 1,20,000 for Rs 1,50,000: capital receipt 1,50,000; capital profit 30,000. Sale of furniture Rs 40,000 book value for Rs 25,000: capital loss Rs 15,000. Sale of goods for Rs 1,50,000 that cost 1,20,000: revenue profit Rs 30,000 even though numbers are the same, because the nature differs.

Same amount, different nature. The classification depends on what is sold, not on the amount.

Capital and Revenue Receipts, Profits and Losses: key facts

Profit/loss on sale of asset: Profit or loss = Sale price - Book value | Book value = Cost - Depreciation; Positive is a capital profit.
Capital receipt test: Capital receipt: from owner, lender, or sale of fixed asset | Revenue receipt: from usual trading; Nature, not amount.
Revenue profit: Net profit = Revenue receipts - Revenue expenditure | Capital items excluded; Excludes capital profit.

How to answer Capital and Revenue Receipts, Profits and Losses questions

Decide the nature first, then the account to which it goes.

1Ask what was received or lost and from which activity.
2Classify as capital or revenue with a reason.
3For sale of assets compute book value and profit or loss.
4State the treatment: balance sheet or Profit and Loss.

Capital and Revenue Receipts, Profits and Losses in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Same amount, different nature

Suppose a bookshop sells a shelf (book value Rs 8,000) for Rs 10,000 and also sells books costing Rs 8,000 for Rs 10,000.

How are the two Rs 2,000 profits treated?

Try it first, then show the solutionSolution

The shelf is a fixed asset: capital profit of Rs 2,000, not in trading profit.
The books are stock-in-trade: revenue profit of Rs 2,000 in the trading result.

Answer: Shelf: capital profit; books: revenue profit.

Memory hook: Fixed asset sale is capital; stock sale is revenue.

Tricks to remember Capital and Revenue Receipts, Profits and Losses

Short memory aids. Say each one aloud once, then use it on a question the same day.

Usual or unusual
Usual business activity gives revenue; unusual disposal or funding is capital.
Use it when: Receipts.
Fixed asset sale
Profit or loss on it is always capital.
Use it when: Profits and losses.
Balance sheet or P&L
Capital to balance sheet, revenue to P&L.
Use it when: Where to show.

Capital and Revenue Receipts, Profits and Losses: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Receipt type · 1 mark · MCQBoard level

The sale of old machinery is a:
(a) revenue receipt (b) capital receipt (c) revenue profit (d) deferred item

Try it first, then show the solutionSolution

A fixed asset sale is a capital receipt.

Answer: (b) capital receipt

Example 2: Classification · 6 marks · Short answerBoard level

Classify as capital receipt, revenue receipt, capital profit or revenue loss: (i) loan from bank Rs 2,00,000 (ii) sales of goods (iii) profit on sale of old furniture (iv) bad debts (v) interest on investments (vi) loss of stock by fire. (6 marks)

Try it first, then show the solutionSolution

(i) Capital receipt.
(ii) Revenue receipt.
(iii) Capital profit.
(iv) Revenue loss.
(v) Revenue receipt.
(vi) Revenue loss.

Answer: (i) capital receipt; (ii) revenue receipt; (iii) capital profit; (iv) revenue loss; (v) revenue receipt; (vi) revenue loss.

Example 3: Profit or loss on sale of assets · 5 marks · Long answerHarder board level

A machine costing Rs 5,00,000 was bought 3 years ago and depreciated Rs 50,000 a year. It is sold for Rs 3,90,000. A car with book value Rs 2,40,000 is sold for Rs 1,95,000. Find the profit or loss on each and their net, and say how they are classified. (5 marks)

Try it first, then show the solutionSolution

Machine book value = 5,00,000 - 3 x 50,000 = 3,50,000; profit = 3,90,000 - 3,50,000 = 40,000.
Car loss = 2,40,000 - 1,95,000 = 45,000.
Net = 40,000 - 45,000 = loss of Rs 5,000.
Both are capital in nature.

Answer: Machine profit Rs 40,000; car loss Rs 45,000; net capital loss Rs 5,000.

Example 4: Revenue and capital results · 5 marks · Long answerHarder board level

Sales Rs 6,00,000, cost of goods sold Rs 4,20,000, indirect expenses Rs 80,000, commission received Rs 12,000, profit on sale of machinery Rs 30,000, loss by fire of a building Rs 20,000 (uninsured). Find the net revenue profit and the net capital result. (5 marks)

Try it first, then show the solutionSolution

Gross profit = 6,00,000 - 4,20,000 = 1,80,000.
Net revenue profit = 1,80,000 + 12,000 - 80,000 = Rs 1,12,000.
Capital result = 30,000 - 20,000 = capital profit Rs 10,000 (net).

Answer: Net revenue profit Rs 1,12,000; net capital profit Rs 10,000.

Example 5: Hidden misclassification · 5 marks · Long answerHOTS / competency

A trader included Rs 25,000 from selling a delivery van (book value Rs 18,000) in sales and the Rs 6,000 premium received on issue of shares in commission income. State the correct treatment and the profit he should show if reported profit was Rs 90,000. (5 marks)

Try it first, then show the solutionSolution

The van is a fixed asset: Rs 7,000 is a capital profit and the Rs 18,000 is reduction of the asset; none of the 25,000 is revenue.
The share premium is a capital receipt.
Revenue profit = 90,000 - 25,000 - 6,000 = Rs 59,000 (if the reported profit included them wholly and no cost of the van was charged).
The Rs 7,000 is shown as capital profit.

Answer: Revenue profit Rs 59,000; capital profit Rs 7,000.

Where students lose marks in Capital and Revenue Receipts, Profits and Losses

The slips examiners see most often, and what to write instead.

Mistake: Treating sale proceeds of a fixed asset as revenue
Money came in.
Wrong working
Credit Sales 1,50,000
Right working
Credit Machinery 1,50,000
Do this: Fixed asset sale is capital.
Usually costs: 2 marks.
Mistake: Counting capital profit in net profit
Hidden in the profit figure.
Wrong working
Net profit 1,42,000 incl. 30,000
Right working
Net profit 1,12,000
Do this: Show separately.
Usually costs: 2 marks.
Mistake: Using cost, not book value, for profit on sale
Ignoring depreciation.
Wrong working
3,90,000 - 5,00,000
Right working
3,90,000 - 3,50,000
Do this: Book value = cost - depreciation.
Usually costs: 2 marks.

Exam tips

Always compute book value before profit or loss on sale.
State "capital" or "revenue" in words, with a reason.
Keep capital profit separate from the net profit line.

Practice questions on Capital and Revenue Receipts, Profits and Losses

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
Which of the following is a revenue receipt?
(a) capital brought in (b) rent received (c) loan raised (d) sale of land
Hint
Regular income.
Answer
(b) rent received
Q2 · 3 marks · Short answerBoard level
Give three differences between capital receipts and revenue receipts. (3 marks)
Hint
Source, repetition, place.
Answer
Capital receipts come from the owner, lenders or fixed asset sales; they are not recurring and go to the balance sheet. Revenue receipts come from normal trading, recur, and go to the Profit and Loss Account.
Q3 · 5 marks · Long answerHarder board level
Furniture bought at Rs 90,000 was depreciated Rs 9,000 a year for 4 years and sold for Rs 62,000. Investments costing Rs 40,000 were sold for Rs 46,500. Find profit or loss on each, the total capital profit, and say where the sale proceeds of both are shown. (5 marks)
Hint
Book value 54,000.
Answer
Furniture: 62,000 - 54,000 = profit 8,000. Investments: 46,500 - 40,000 = profit 6,500. Total capital profit Rs 14,500. Proceeds are capital receipts reducing the assets.
Q4 · 5 marks · Long answerHarder board level
A business reports gross profit Rs 2,40,000, rent received Rs 18,000, loss on sale of machinery Rs 12,000, salaries Rs 70,000, loss of stock by theft Rs 9,000 and profit on sale of investments Rs 15,000. Find the net revenue profit and the net capital result. (5 marks)
Hint
Stock theft is revenue.
Answer
Net revenue profit = 2,40,000 + 18,000 - 70,000 - 9,000 = Rs 1,79,000. Capital result = 15,000 - 12,000 = capital profit Rs 3,000.
Q5 · 3 marks · Short answerHOTS / competency
A shop owner argues that a Rs 5,00,000 loan received is a profit because cash increased. Evaluate, and say what the loan does to the balance sheet. (3 marks)
Hint
Obligation.
Answer
The loan is a capital receipt and must be repaid; it increases both cash (asset) and loan (liability) by Rs 5,00,000, so there is no profit.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Sale of fixed asset is?Show answer
Capital receipt.
2.Commission earned is?Show answer
Revenue receipt.
3.Capital profit goes to?Show answer
Capital reserve.
4.Bad debts are?Show answer
Revenue loss.
5.Profit on sale of a fixed asset uses?Show answer
Book value.

Capital and Revenue Receipts, Profits and Losses: frequently asked questions

Are capital receipts income?

No.

Is dividend revenue?

Yes, revenue receipt.

Can capital loss be written off?

Against capital reserve or as the question directs.

Is premium on shares capital?

Yes.