A and B are partners in a firm sharing profits in the ratio 2 : 1. C is admitted into the firm with 1/4 share in profits. He will bring in ₹30,000 as capital and capitals of A and B are to be adjusted in the profit sharing ratio. The balance sheet of A and B as on March 31, 2017 (before C's admission ) was as under :
Balance Sheet of A and B as at March 31,2017
| Liabilities | Amount (Rs) | Assets | Amount (Rs) |
| Creditors | 8,000 | Cash in hand | 2,000 |
| Bills payable | 4,000 | Cash at Bank | 10,000 |
| General Reserve | 6,000 | Sundry Debtors | 8,000 |
| Capital : A 50000 B 32000 |
82,000 | Stock | 10,000 |
| Furniture | 5,000 | ||
| Machinery | 25,000 | ||
| Building | 40,000 | ||
| 1,00,000 | 1,00,000 |
Other terms of agreement are as under :
1. C will bring in ₹12,000 as his share of goodwill.
2. Building was valued at ₹45,000 and Machinery at ₹23,000
3. A provision for bad debts is to be created @6% in debtors.
4. The capital accounts A and B are to be adjusted by opening current accounts.
Calculate the profits or loss on Revaluation of Assets and liabilities.
Answer & explanation
Correct answer: option 3
The correct answer is option 3- ₹2,520 (profit).
Revaluation Account
| PARTICULARS | AMOUNT (₹) | PARTICULARS | AMOUNT (₹) |
| To machinery A/c | 2,000 | By building | 5,000 |
| To provision for doubtful debts | 480 | ||
| To profit transferred A 1,680 B 840 |
2,520 | ||
| 5,000 | 5,000 |