An extract of Balance Sheet as on 31 March 2023
| Liabilities | Amount(₹) | Asset | Amount(₹) |
| Provision of legal damages | 4,800 | Furniture | 41,000 |
| Premises | 85,000 |
Additional Information :
Premises found under valued by 15% 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
Provision for legal damages increase by (6000- 4800) ₹1200 which is loss for the firm so journal entry for this-
Revaluation A/c Dr. 1200
To Provision for legal damages A/c 1200
Premises value = ₹85,000
Its undervalued by 15%
85 % = 85000
100% = 85000/85 X 100
= 1,00,000
It means premises are undervalued by ₹15,000. Journal entry for this correction is as follows-
Premises A/c Dr. ₹15,000
To Revaluation A/c ₹15,000
So, combined journal entry for both is as follows-
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