Illustrations · Q7
Q.A and B share profits equally. On admission of C, the partners agree to the following revaluation: Building is appreciated by ₹15,000; Stock is reduced by ₹5,000; a Provision for Doubtful Debts of ₹2,000 is to be created; Creditors are found to be over-stated and are reduced by ₹3,000; and an unrecorded liability for outstanding expenses of ₹1,000 is brought into the books. Prepare the Revaluation Account and state how the resulting profit or loss is shared.
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Start your 14-day free trial to unlock the full solution →Revaluation Account
| Dr | Particulars | Amount (₹) | Cr | Particulars | Amount (₹) |
|---|---|---|---|---|---|
| To Stock A/c | 5,000 | By Building A/c | 15,000 | ||
| To Provision for Doubtful Debts A/c | 2,000 | By Creditors A/c | 3,000 | ||
| To Outstanding Expenses A/c | 1,000 | ||||
| To Profit transferred to: | |||||
| A's Capital A/c | 5,000 | ||||
| B's Capital A/c | 5,000 | ||||
| Total | 18,000 | Total | 18,000 |
Working: the increase in Building (₹15,000) and the reduction in Creditors (₹3,000, a decrease in a liability, which is a gain) together give total gains of ₹18,000. The fall in Stock (₹5,000), the new Provision for Doubtful Debts (₹2,000) and the previously unrecorded Outstanding Expenses liability (₹1,000) together give total losses of ₹8,000. Net result = ₹18,000 − ₹8,000 = ₹10,000 PROFIT on revaluation. …
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