Question

At what figures the value of assets and liabilities appear in the books of the firm after revaluation has been due. Show with the help of an imaginary balance sheet.

Answer 1

Revaluation is done on the basis of the current market value of the assets and liabilities. In this way the assets and liabilities appear at their current market values in the balance sheet of the reconstituted firm. To understand it in a better manner, we can take an example-

Below is given the Balance Sheet of A and B who shares profit and loss equally.

$\text{Balance Sheet of A, B and C}\text{as an April 1, 2012}$

$\begin{array}{cccc}\text{Liabilities and Capital}& \text{Amt. (Rs)}& \text{Assets}& \text{Amt. (Rs)}\\ \text{Sundry Creditors}& 1,70,000& \text{Building}& 2,00,000\\ & & \text{Plant and Machinery}& 1,50,000\\ & & \text{Furniture}& 1,00,000\\ & & \text{Debtors}& 42,000\\ & & \text{Stock}& 38,000\\ & & \text{Cash in Hand}& 10,000\\ & & \text{Cash at Bank}& 30,000\\ \text{Capital Accounts}& & & \\ A2,00,000& & & \\ B\underset{–}{2,00,000}& 4,00,000& & \\ & \overline{\underset{–}{\underset{–}{5,70,000}}}& & \overline{\underset{–}{\underset{–}{5,70,000}}}\end{array}$

(i) On that date, C is admitted for $\frac{1}{3}$ rd 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.

$\text{Dr}\text{Revaluation Account}\text{Cr}\begin{array}{cccc}\text{Particulars}& \text{Amt. (Rs)}& \text{Particulars}& \text{Amt. (Rs)}\\ \text{Provision for Bad Debts}& 10,000& \text{Stock (Increase)}& 12,000\\ \text{Salary Outstanding A/c}& 12,000& \text{Furniture (Increase)}& 50,000\\ & & \text{Machinery (Increase)}& 50,000\\ \text{Profit Transferred to}& & & \\ \text{A's Capital A/c}45,000& & & \\ \text{B' Capital A/c}\underset{–}{45,000}& 90,000& & \\ & \overline{\underset{–}{\underset{–}{1,12,000}}}& & \overline{\underset{–}{\underset{–}{1,12,000}}}\end{array}$

$\text{Balance Sheet of A, B and C}\text{as an April}$
$\begin{array}{ccccc}\text{Liabilities and Capital}& \text{Amt. (Rs)}& \text{Assets}& & \text{Amt. (Rs)}\\ \text{Sundry Creditors}& 1,70,000& \text{Building}& & 2,00,000\\ \text{Salary Outstanding}& 12,000& \text{Plant and Machinery}& 1,50,000& \\ & & \text{+Increase}& \underset{–}{50,000}& 2,00,000\\ & & \text{Furniture}& 1,00,000& \\ & & \text{+Appreciation}& \underset{–}{50,000}& 1,50,000\\ & & \text{Debtors}& 42,000& \\ & & \text{- Provision}& \underset{–}{(10,000)}& 32,000\\ & & \text{Stock [38,000 + 12,000]}& & 50,000\\ & & \text{Cash in hand}& & 3,10,000\\ & & \text{Cash at bank}& & 30,000\\ \text{Capital Accounts}& & & & \\ \text{A}2,45,000& & & & \\ \text{B}2,45,000& & & & \\ \text{C}\underset{–}{3,00,000}& \underset{–}{7,90,000}& & & \\ & \overline{\underset{–}{\underset{–}{9,72,000}}}& & & \overline{\underset{–}{\underset{–}{9,72,000}}}\end{array}$