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

Ravi Traders sold an old delivery van, which stood in its books at Rs 45,000, for Rs 52,000. How should the Rs 7,000 difference be treated?

The Rs 7,000 excess of sale price over book value is a capital profit. The van is a fixed asset kept for use in the business and not for resale, so a gain on its disposal is not earned from normal trading operations.

  1. ACapital profit, because it arises from sale of a fixed assetCorrect
  2. BRevenue profit, because it is a gain in the current year
  3. CCapital receipt that is credited directly to the van account
  4. DRevenue expenditure because the van is no longer held

Explanation

The van is a fixed asset held for use, not for resale. The gain of 52,000 - 45,000 = Rs 7,000 therefore arises from disposal of a fixed asset and is a capital profit. Calling it revenue profit is wrong because the sale is not part of normal trading.

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