Book debts was ₹1,00,000 as given in the balance sheet as on 31st March 2022. On 1st April, 2022 the partners decided to share profits equally instead of distributing the profits in there capital ratio. On the date, bad debts for Rs40,000 were written off and a new provision for doubtful debt is to be maintained @5%. How will you treat their adjustment in revaluation account of the firm?
Answer & explanation
Correct answer: option 3
The correct answer is option (3) : revaluation account - debited by ₹43,000.
Book debts = ₹1,00,000
Bad debts = ₹40,000
Remaining book debts after bad debts = 1,00,000 - 40,000
= ₹60,000
Provision to be made = 5%.
This provision is made on remaining book debts.
Provision = 60,000 x 5/100
= ₹3,000
Both bad debts and provision is loss for the firm so revaluation account is debited. Journal entry for this-
Revaluation A/c Dr. ₹43,000
To Provision for doubtful debts ₹3,000
To Debtors ₹40,000