Question

The goods worth Rs. 16,000 were lost in fire by M/s Jyoti Limited; however the Insurance claim of Rs. 10,000 was received from the insurance company. Which out of the following is the correct treatment?
1. Capital receipt is Rs. 10,000 and Rs. 16,000 is deferred revenue expenditure
2. Revenue expenditure is Rs. 16,000 and there is no treatment for Rs. 10,000.
3. Revenue expenditure is Rs. 6,000
4. Capital receipt is Rs. 10,000 and revenue expenditure is Rs. 16,000

Answer 1

Correct Answer - Option 3 : Revenue expenditure is Rs. 6,000

The correct answer is Revenue expenditure is Rs. 6,000.

• Capital Receipts: The receipts which tend to increase the financial liabilities or reduce the financial asset are called Capital Receipts. These are not of recurring nature.
• Revenue Expenditure: These are those expenditures that are incurred in the normal course of business. These expenditures are for the short term and are recurring in nature. These also include the losses incurred in normal business activity.
• Goods lost by fire are Revenue expenditures up to the amount of actual loss incurred. Since goods worth Rs. 16000 were lost from fire but the claim of Rs. 10000 was received from Insurance company, so actual loss incurred was Rs. 6000. So, Rs. 6000 is Revenue Expenditure.

• Deferred Revenue Expenditure: The expenses which are incurred in present, but its benefits are expected to be received in future is called Deferred Revenue Expenditure. This expense could be written off in the same fiscal year or several years.