QS Study

Capital profit is the profit which arises not from the normal course of the business. Profit on sale of fixed asset is an example for capital profit.

The amount of turnover earned by the business from the trade of its assets, shares, and debentures is capital profit. If assets are sold at a value more than their book values then the surplus of book value is capital profit. Likewise, if the shares and debentures are issued at a price more than their face value, then the surplus of face value or premium is capital profit. Such profit is not earned in the normal route of the business. It is not obtainable for the allotment to shareholders as dividend. Such earnings are transferred to assets reserve. It is used for assembly capital losses. It is shown on the liabilities side of balance sheet.