Revenue, Capital P/L

A capital profit is a profit gained on the sale of a fixed asset or on the raising of capital for a business (by issuing shares at premium). This isn’t an usual profit for the company, and it wasn’t achieved in the normal course of business. For example, if a $50,000 piece of equipment is sold for $60,000, the profit of $10,000 is a capital profit. Similarly, if a joint stock corporation issues $ 2,00,000 shares at a premium of $10,000 to raise capital, the $10,000 premium will constitute a capital profit.

It’s worth noting the difference between capital receipt and capital profit in this context. A $50,000 piece of equipment is sold for $60,000. The capital profit is $10,000, and the capital receipt is $60,000. This form of earnings isn’t consistent or recurrent. It will be listed under the heading “Capital Reserve” on the liability side of the Balance Sheet.

Revenue, Capital P/L

Profits from Revenue:

This is a profit made in the usual course of business, such as profit from the sale of commodities, rent, interest, and so on.

Loss of capital:

This is a loss sustained by a firm when it sells a fixed asset or when it raises capital in a joint stock company. This is not a regular loss, and it occurred outside of the normal course of business. e.g. A capital loss of $5,000 occurs when equipment with a book value of $50,000 is sold for $45,000. Similarly, if a corporation issues $1,000,000 worth of shares at a 10% discount, the loss of $10,000 (10% of $1,000,000) is a capital loss. Capital loss is recorded as a fictional item on the asset side of the Balance Sheet, and it is progressively written off from profits each year.

Loss of revenue:

This loss occurs in the usual course of a business’s day-to-day operations, such as a loss on the sale of products. In the year in which the revenue loss occurs, it is recorded in the profit and loss account or income statement.