— Kishore V, SME and ACW at Edumarz
The current market value of the assets and liabilities is used to revalue them. In the rebuilt firm’s balance sheet, the assets and liabilities show at their current market prices. We may use the following example to better understand it:
The balance sheets of A and B, who split profit and loss equally, are shown below.
A, B, and C’s balance sheets as of April 1, 2012
Liabilities | ₹ | Assets | ₹ |
Sundry Creditors Capital Accounts A: 2,00,000 B: 2,00,000 ==================== | 1,70,000 4,00,000 ======== 5,70,000 | Building Plant and Machinery Furniture Debtors Stock Cash-in-hand Cash at Bank | 2,00,000 1,50,000 1,00,000 48,000 32,000 10,000 30,000 ======== 5,70,000 |
(i) On that date, C is admitted for
1/3rd share and brings Rs. 3,00,000 capital.
(ii) The value of stock is increased by Rs. 12,000
(iii) A provision of Rs. 10,000 has been created against Debtors.
(iv) Furniture revalued at Rs. 1,50,000
(v) Machinery will be revalued at Rs. 2,00,000 purchased is not recorded in books.
(vi) Salary outstanding Rs. 12,000
The following will be the procedure to record the above mentioned transactions.
Dr Revaluation Account Cr
Particulars | ₹ | Particulars | ₹ |
Provision for bad debts Salary Outstanding Profit transferred to A’s Capital: 45,000 B’s Capital: 45,000 ==================== | 10,000 12,000 90,000 ======== 1,12,000 | Stock Machinery Furniture | 12,000 50,000 50,000 ======== 1,12,000 |
Dr Balance Sheet Cr
Liabilities | ₹ | Assets | ₹ |
Sundry Creditors Salary Outstanding Capital Accounts A: 2,45,000 B: 2,45,000 C: 3,00,000 ==================== | 1,70,000 12,000 7,90,000 ======== 9,72,000 | Building Plant and Machinery 1,50,000 Add: Increases 50,000 Furniture 1,50,000 Add: Increases 50,000 Debtors 42,000 Less: Provision 10,000 Stock[38,000 + 12,000] Cash-in-hand Cash at Bank | 2,00,000 2,00,000 2,00,000 32,000 50,000 3,10,000 30,000 ======= 9,72,000 |