Which of the following best describes capital income?

• A. Income from day-to-day sales
• B. Income from selling an asset that was previously capital expenditure
• C. Interest earned on investments
• D. Government grant

Answer: (B)

Capital income are receipts that come from non-operating activities and relate to long-term assets or other capital transactions, not from the normal day-to-day trading of goods or services. Selling a fixed asset that was originally bought as a capital expenditure fits this idea perfectly: you’re realising money from disposing of a capital item, so the cash received is a capital receipt rather than part of trading profit.

Income from day-to-day sales is revenue income, since it comes from normal business activity. Interest earned on investments is also typically treated as revenue income (financing or investment income), not capital income. A government grant could be a capital grant, but that depends on its purpose; without that specification, it isn’t as clear a match as the straightforward sale of a capital asset.