Multiple choice

Loss due to devaluation on loan, taken in foreign currency for purchase of a machinery: Rs. 5, 00, 000 is

  1. capital loss

  2. revenue expenditure

  3. capital expenditure

  4. deferred revenue expenditure
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A Correct answer
Explanation

When a foreign currency loan is taken specifically for purchasing machinery (a capital asset), any loss from devaluation of that loan is treated as a capital loss. This is because the loss relates directly to the acquisition of a capital asset. Had it been a trading loan or for working capital, the devaluation loss would be revenue in nature. The capital connection determines the classification.

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