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A and B are two partners, dealing in manufacturing steel, sharing profits in the ratio of 2 : 1. They enjoying a buoyant demand of its products as economic growth is about 7% - 8% and the demand for steel is growing. It is planned to set up a new steel plant to encash on the increasing demand. It is estimated that they will require about Rs. 1,00,000. So they admitted, C as a partner. On the date of admission Balance sheet is as follows.

Balance Sheet of A and B

LiabilitiesRs.AssetsRs.
Bills Payble10,000Cash in hand10,000
Sundry creditor58,000Cash at bank40,000
Outstanding Expenses2,000Sundry Debtors60,000
Capital3,30,000Stock40,000
A - 1,80,000Plant and Machinery1,00,000
B - 1,50,000Building1,50,000
4,00,0004,00,000

Other information :

  1. C will bring in Rs. 1,00,000 as capital and Rs. 60,000 as his share of goodwill for 14\frac{1}{4} share in profit.
  2. Plant is to be appreciated to Rs. 1,20,000 and the value of building is to be appreciated by 10%.
  3. Stock is found overvalued by Rs. 4,000.
  4. A provision for doubtful debts is to be created at 5% of debtors.
  5. Creditors were unrecorded to the extant of Rs. 1,000.

On the basis of above case study, answer the following :

Provision for Doubtful debts to be shown in Revaluation Account :

Solution

✅ Correct Option: 3

Provision for Doubtful Debts is created at 5% of debtors. Debtors = 60,000. Provision = 5% * 60,000 = 3,000. Since no existing provision is mentioned, the full 3,000 is debited to Revaluation Account as a loss on revaluation.

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