The Balance sheet of Himanshu, Pranav and Tushar who were sharing profits in proportion to their capital stood as follows:
| Balance Sheet as on 31 March 2022 |
|||
| Liabilities | Rs | Assets | Rs |
| Sundry Creditors | 25,000 | Land and Building | 35,000 |
| Investment Fluctuation Fund | 5,000 | Machinery | 45,500 |
| Bills Payable | 10,000 | Stock | 13,000 |
|
Capital: |
70,000 | Debtors | 6,000 |
| Investment | 5,000 | ||
| Bank | 4,000 | ||
| Profit and loss A/c | 1,500 | ||
| 1,10,000 | 1,10,000 | ||
Addition Information:
(a) On 1st April 2022, they admitted Rachit into partnership for 1/6th share in future profit.
(b) Rachit will bring ₹25,000 for capital and ₹15,000 for goodwill.
(c) A provision for doubtful debts of 7% was to be made.
(d) Land and building is to be appreciated to 120%.
(e) Machinery is decreased by ₹1,500.
On the basis of above case give answer to question:
Identify gain/loss on Revaluation of assets.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → ₹5,080 gain
The Revaluation Account is credited with increases in assets and debited with decreases and new provisions; its balance is the gain or loss.
Increase in Land and Building = 35,000 × 20% = ₹7,000 (Cr.)
Provision for doubtful debts = 6,000 × 7% = ₹420 (Dr.)
Decrease in Machinery = ₹1,500 (Dr.)
Gain = 7,000 − (420 + 1,500)
= 7,000 − 1,920
= ₹5,080 gain