Skip to content

CMA Foundation · Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions

Nair Industries sold investments, held for the long term, which cost Rs 5,00,000, for Rs 4,60,000. Separately, goods costing Rs 20,000 were destroyed by fire in its godown and were not insured. Which statement is correct?

The Rs 40,000 loss on long-term investments is a capital loss because it arises from disposing of a capital asset, while the Rs 20,000 loss of stock by fire is a revenue loss because stock-in-trade is a revenue item used in trading.

  1. ABoth losses are capital losses
  2. BThe loss on investments is a revenue loss and the loss of goods is a capital loss
  3. CBoth losses are revenue losses
  4. DThe loss on investments is a capital loss and the loss of goods is a revenue lossCorrect

Explanation

Long-term investments are capital assets, so loss of Rs 40,000 on sale is a capital loss. Stock destroyed is a loss of trading stock, hence revenue loss of Rs 20,000. The reverse classification is wrong.

Did you get it right without looking?

One question tells you little. A timed set on Capital and Revenue Transactions shows your real accuracy, how long you take and where you lose marks.

Practise Capital and Revenue TransactionsFree diagnostic mock

More Capital and Revenue Transactions questions