CMA Foundation · Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions
Which of the following is a capital loss rather than a revenue loss for a manufacturing company?
Loss on sale of an old machine below book value is a capital loss, because the machine is a fixed asset. Losses on stock through theft or flood and bad debts relate to trading and current assets, so they are revenue losses.
- ALoss on sale of an old machine below its book valueCorrect
- BLoss of raw material by theft from the store
- CBad debts written off on credit sales
- DLoss of finished goods by flood in the godown
Explanation
A machine is a fixed asset, so a loss on its sale is a capital loss. Theft of raw material, bad debts and flood loss of finished goods concern current assets used in trading and are revenue losses.
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