Distinguishing Capital vs. Revenue Income

Steps:

• Identify capital income as gains from selling long-term assets like property, not regular business operations.
• Review each option: Check if it involves disposal of a capital asset or ongoing income generation.
• Eliminate options tied to everyday business activities, such as interest, rent, or inventory sales.
• Confirm the remaining option matches the definition of capital income from asset sales.

Why B is correct:

• Capital income arises from the sale of fixed assets like business premises, per accounting standards (e.g., IAS 16), representing a one-time gain on capital investment.

Why the others are wrong:

• A: Bank interest is revenue income from investments, recurring and operational.
• C: Rental income is revenue from property use, treated as ordinary business earnings.
• D: Sale of inventory generates revenue income, part of core trading activities.

Final answer: B