CA Foundation Exam > CA Foundation Questions > Insurance claim received on machinery destroy...
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Insurance claim received on machinery destroyed by fire is a ____
- a)Capital receipt
- b)Revenue receipt
- c)Capital expenditure
- d)Revenue Expenditure
Correct answer is option 'A'. Can you explain this answer?
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Verified Answer
Insurance claim received on machinery destroyed by fire is a ____a)Cap...
Capital Expenditure.
The asset itself will be modified, its value should be accounted for depreciation and totaled, the claim should be added to the net value make it net/ loss.
Most Upvoted Answer
Insurance claim received on machinery destroyed by fire is a ____a)Cap...
Insurance claim received on machinery destroyed by fire is a Capital receipt.
Explanation:
Capital receipt:
- A capital receipt refers to the amount of money received by a company or individual that is not part of their normal business operations.
- It represents the inflow of funds that are used to finance the acquisition of long-term assets or to reduce long-term liabilities.
- Capital receipts are non-recurring in nature and have a long-term impact on the financial position of the entity.
Revenue receipt:
- A revenue receipt, on the other hand, refers to the amount of money received by a company or individual that is part of their normal business operations.
- It represents the inflow of funds from the sale of goods or services, interest income, dividend income, etc.
- Revenue receipts are recurring in nature and have a short-term impact on the financial position of the entity.
Insurance claim received on machinery destroyed by fire:
- In the given scenario, the machinery was destroyed by fire, and the insurance company has paid an amount as compensation for the loss.
- This amount received from the insurance company is a one-time payment and is not part of the normal business operations of the company.
- The purpose of this amount is to compensate for the loss of the machinery, which is a long-term asset.
- Therefore, the insurance claim received on machinery destroyed by fire is considered a capital receipt.
Conclusion:
- The insurance claim received on machinery destroyed by fire is categorized as a capital receipt because it is a one-time payment received for the loss of a long-term asset.
Explanation:
Capital receipt:
- A capital receipt refers to the amount of money received by a company or individual that is not part of their normal business operations.
- It represents the inflow of funds that are used to finance the acquisition of long-term assets or to reduce long-term liabilities.
- Capital receipts are non-recurring in nature and have a long-term impact on the financial position of the entity.
Revenue receipt:
- A revenue receipt, on the other hand, refers to the amount of money received by a company or individual that is part of their normal business operations.
- It represents the inflow of funds from the sale of goods or services, interest income, dividend income, etc.
- Revenue receipts are recurring in nature and have a short-term impact on the financial position of the entity.
Insurance claim received on machinery destroyed by fire:
- In the given scenario, the machinery was destroyed by fire, and the insurance company has paid an amount as compensation for the loss.
- This amount received from the insurance company is a one-time payment and is not part of the normal business operations of the company.
- The purpose of this amount is to compensate for the loss of the machinery, which is a long-term asset.
- Therefore, the insurance claim received on machinery destroyed by fire is considered a capital receipt.
Conclusion:
- The insurance claim received on machinery destroyed by fire is categorized as a capital receipt because it is a one-time payment received for the loss of a long-term asset.
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Community Answer
Insurance claim received on machinery destroyed by fire is a ____a)Cap...
Because it is a receipt which is earned only once means just after destroy of machinery in order to recover the loss on destroy
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Insurance claim received on machinery destroyed by fire is a ____a)Capital receiptb)Revenue receiptc)Capital expenditured)Revenue ExpenditureCorrect answer is option 'A'. Can you explain this answer?
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