CAPITAL AND REVENUE: ILLUSTRATION 12
A person purchases shares of a company for investment purposes. After some period of time, he is in need of money and, in order to fulfil his need, he sells the shares, the amount received by him is a capital receipt. On the other hand, if a person purchases the shares with a motive of reselling them at profit, the amount realized on the sale will be a revenue receipt.
Examples of Capital Receipts
1. Insurance amount received under a policy that insured the building against loss by fire.
2. Damage awarded to a railway passenger who became permanently disabled in an accident.
3. Royalty received from sale of mining rights.
4. Premium on issue of shares.
5. Amount received by a director by virtue of a contract between him and the company in which he undertook not to do a particular business.
Examples of Revenue Receipts
1. Profit on sale of a house by a property dealer.
2.Receipt of three years’ rent of building in advance.
3. Compensation received on temporary Dfa Ho disability.
4. Salary received by an employee engaged in construction of a building for business purposes.
5.Royalty received from the user of a right.
