Revenue, Capital P/L

Capital profit is a profit which is earned, on the sale of a fixed asset or profit earned on raising capital for a company (by issuing shares at premium). This is not a regular profit of the business and is not earned in the ordinary trade of the business. For example, if a machinery having book value of $50,000 is sold for $60,000, the profit of $10,000 will be a capital profit. In the same way, a joint stock company issues shares of $ 2,00,000 at a premium of $10,000 to raise capital, such premium of $10,000 will be a capital profit.

In this connection the distinction between capital receipt and capital profit may be noted. A machinery of $50,000 is sold for $60,000. Here capital receipt is $60,000 and capital profit is $10,000. This type of profit is not recurring and regular. It will be shown on the liability side of the Balance Sheet under the head “Capital Reserve”.

Revenue Profits:

This is a profit which is earned during the ordinary course of business e.g. profit on sale of goods, rent received, interest received etc.

Capital Loss:

This is a Joss suffered by a business on the sale of a fixed asset or it is incurred on raising capital of a joint stock company. This is not a recurring loss and is not made in the ordinary course of the business. e.g. A machinery having book value of $50,000 is sold for $45,000, the loss of $ 5,000 is a capital loss. In the same way, a company issued shares of $1,00,000 at 10% discount, the loss of $10,000 (10% of $1,00,000) is a capital loss. Capital loss is sown in the Balance Sheet on the asset side as a fictitious asset which is gradually written off out of the profits every year.

Revenue Loss:

This loss is made in the ordinary course or day to day operation of a business such as loss on sale of goods etc. Revenue loss appears in the profit and loss account or income statement in the year in which it occurs.