CMA Foundation · Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions
Which of the following is a capital loss for a manufacturing company?
A loss on selling a machine below its book value is a capital loss, because the machine is a fixed asset. The other items, bad debts, stock theft and falling raw-material prices, arise from trading activity and are revenue losses.
- ALoss from bad debts on credit sales
- BLoss on selling a machine below its book valueCorrect
- CLoss of stock-in-trade by theft
- DLoss due to a fall in price of raw material held in stock
Explanation
Selling a fixed asset (machine) below book value gives a capital loss. Bad debts, stock theft and fall in stock value relate to trading assets and are revenue losses.
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