Question

Capital raised by an issue of shares and debentures is considered as Capital receipts. Justify this statement

Answer 1

Capital receipts refer to the receipts of a non-recurring nature, such as additional capital from owners, loans raised by the firm and money obtained from the sale of fixed assets. These receipts involve the creation of a liability or a reduction in the value of fixed assets. Capital receipts are shown on the liabilities side of the Balance Sheet.

Thus, all receipts which involve creation of a liability or reduction in the value of fixed assets are called capital receipts.