An extract of Balance Sheet as on 31 March 2023
| Liabilities | Amount(₹) | Asset | Amount(₹) |
| Provision for legal damages | 4,800 | Furniture | 41,000 |
| Premises | 85,000 |
Additional Information :
Premises were found undervalued by 15% of their real value and provision for legal damages to be created upto ₹6,000.
On the basis of above information pass journal entry at the time of reconstitution of firm.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Premises A/c Dr ₹15,000 Revaluation A/c Dr. ₹1,200 To Revaluation A/c ₹15,000 To Provision for legal damages A/c ₹1,200
The premises are shown at ₹85,000, which is 15% below their real value.
Real value = ₹85,000 ÷ 85% = ₹1,00,000
Increase in premises = ₹1,00,000 − ₹85,000 = ₹15,000 (gain): Premises A/c Dr. To Revaluation A/c
Increase in provision = ₹6,000 − ₹4,800 = ₹1,200 (loss): Revaluation A/c Dr. To Provision for legal damages A/c
The two entries together give Option (2).
NCERT (2026-27 edition):
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