Question

Which of the following is not a capital profit?

Options

• Profit prior to incorporation of the company

• Profit from the sale of fixed assets

• Premium on issue of shares

• Compensation received on the termination of a contract

Answer 1

Compensation received on the termination of a contract

Explanation:

1. Profit prior to incorporation → This is a capital profit (cannot be distributed as dividend).
2. Profit from sale of fixed assets → This is also a capital profit.
3. Premium on issue of shares → This is a capital profit, credited to Securities Premium Reserve.
4. Compensation received on termination of a contract → This is treated as a revenue profit, not a capital profit.