Calculate the profit or loss on revaluation from the following information -

Machinery to be appreciated by 16,000
Unrecorded liability of Rs 4,000
General Reserve of Rs10,000

₹12,000 Profit

The correct answer is option 2- ₹12,000 Profit.

Machinery appreciation = 16,000 (profit of the firm)
Less : Unrecorded liability = 4000 (loss of the firm)
        = 12,000

Thus, Profit on revaluation = 12,000.

* General reserve is directly distributed between partners in their old ratio. So, it is credited to partners capital account.