Classify the following receipts into capital and revenue.
(i) Sale proceeds of goods ₹75,000 (ii) Loan borrowed from bank ₹2,50,000 (iii) Sale of investment ₹1,20,000.
(iv) Commission received ₹31,000 (v) ₹1,400 wages paid in connection with the erection of new machinery.

OR

Question

Classify the following receipts into capital and revenue.
(i) Sale proceeds of goods ₹75,000  (ii) Loan borrowed from bank ₹2,50,000  (iii) Sale of investment ₹1,20,000.
(iv) Commission received ₹31,000  (v) ₹1,400 wages paid in connection with the erection of new machinery.

OR

Following are the ledger balances of Devi as on 31st December, 2016.

| Debit balance | ₹ | Credit balance | ₹ |
| --- | --- | --- | --- |
| Purchases | 25,000 | Goodwill | 40,000 |
| Salaries | 11,790 | Sundry debtors | 20,900 |
| Drawings | 4,500 | Furniture | 51,000 |
| Opening Stock | 6,230 | General expenses | 3,230 |
| Capital | 20,000 | Commission received | 2,730 |
| Sales | 78,500 | Loan | 44,000 |
| Carriage inwards | 21,500 | Cash at bank | 3,100 |
| Bad debts | 600 | Provision for bad debts | 2,300 |

Prepare trading and profit and loss account for the year ended 31st December, 2016 and balance sheet as on that date.
(a) Stock on 31st December, 2016 ₹6,500.
(b) Write off bad debts ₹600.
(c) Make a provision for bad debts @ 5%.
(d) Provide for discount on debtors @ 2%.

Accepted Answer

>

> [!TLDR]
> (a) Revenue receipts: sale of goods, commission received. Capital receipts: bank loan, sale of investment. Item (v) is capital expenditure, not a receipt (flagged). (b) OR — Devi's final accounts give GP ₹32,270 and NP ₹19,679.30, but the printed (swapped-column) trial balance does not tally, so the balance sheet is short by ₹40,320.
>
> ### (a) Classification of Receipts
>
> | Item | Classification | Reason |
> | --- | --- | --- |
> | (i) Sale proceeds of goods ₹75,000 | **Revenue receipt** | Arises from normal trading of goods |
> | (ii) Loan borrowed from bank ₹2,50,000 | **Capital receipt** | Creates a liability; not earned income |
> | (iii) Sale of investment ₹1,20,000 | **Capital receipt** | Proceeds from selling a non-trading asset |
> | (iv) Commission received ₹31,000 | **Revenue receipt** | Recurring income from operations |
> | (v) ₹1,400 wages paid on erection of new machinery | **Not a receipt** | It is a *payment* — capital expenditure added to machinery |
>
> [!NOTE]
> **Honest flag:** item (v) is listed under "receipts" in the paper but it is actually a **payment/expenditure**, not a receipt. Being wages incurred to install a fixed asset, it is **capital expenditure** (capitalised to the machinery), not a capital or revenue receipt.
>
> ### (b) OR — Final Accounts of Devi for the year ended 31st December 2016
>
> [!NOTE]
> **Column-swap flag:** this district paper prints Capital (₹20,000) and Sales (₹78,500) under the *Debit* column and Goodwill, Sundry debtors, Furniture, General expenses and Cash at bank under the *Credit* column. These are solved by each account's true nature (Capital and Sales are credits; Goodwill, debtors, furniture, general expenses and bank are debits). With the amounts exactly as printed the trial balance does NOT tally — true debits ₹1,87,850 vs true credits ₹1,47,530, short ₹40,320 on the credit side — so the balance sheet below is short on the liabilities side by the same ₹40,320. The most likely cause is

Particulars	₹	Particulars	₹
To Opening stock	6,230	By Sales	78,500
To Purchases	25,000	By Closing stock	6,500
To Carriage inwards	21,500
To Gross profit c/d	32,270
Total	85,000	Total	85,000
To Salaries	11,790	By Gross profit b/d	32,270
To General expenses	3,230	By Commission received	2,730
To Bad debts	600	By Old provision for bad debts	2,300
To Further bad debts	600
To New provision for bad debts	1,015
To Provision for discount on debtors	385.70
To Net profit (to Capital)	19,679.30

Debit balance	₹	Credit balance	₹
Purchases	25,000	Goodwill	40,000
Salaries	11,790	Sundry debtors	20,900
Drawings	4,500	Furniture	51,000
Opening Stock	6,230	General expenses	3,230
Capital	20,000	Commission received	2,730
Sales	78,500	Loan	44,000
Carriage inwards	21,500	Cash at bank	3,100
Bad debts	600	Provision for bad debts	2,300

Item	Classification	Reason
(i) Sale proceeds of goods ₹75,000	Revenue receipt	Arises from normal trading of goods
(ii) Loan borrowed from bank ₹2,50,000	Capital receipt	Creates a liability; not earned income
(iii) Sale of investment ₹1,20,000	Capital receipt	Proceeds from selling a non-trading asset
(iv) Commission received ₹31,000	Revenue receipt	Recurring income from operations
(v) ₹1,400 wages paid on erection of new machinery	Not a receipt	It is a payment — capital expenditure added to machinery

(a) Classification of Receipts

(b) OR — Final Accounts of Devi for the year ended 31st December 2016

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