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Accounting treatment on profit on sale of land

Chitral Sharma (Associate) (30 Points)

07 August 2013

Can profit on sale of land directly treansfer to balance sheet as capital reserve without affecting the profit and loss account?

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10 Replies

CA Kunal Mishra (Consultancy Service) (172 Points)
Replied 07 August 2013

It has to be credited to P&L A/c unless earlier value of land was increased due to revaluation

NILA REJESH P (Chartered Accountant) (815 Points)
Replied 07 August 2013

Credit to P/L Account

Chitral Sharma (Associate) (30 Points)
Replied 07 August 2013

What will be the treatment of same as per Revised Schedule VI, as it does not clarify the disclosure of transfer to the capital reserve?

Hemant Kumar (Accounts Manager MBA (Fin) CMA*) (6450 Points)
Replied 07 August 2013

Should be credited to Profit & Loss Account as a Profit on Sale of Asset.

Lokesh (CS professional) (493 Points)
Replied 08 August 2013

Dear, the journal entry for profit on sale of Land will be

Ex: If a Land of a value of Rs. 8000 is sold for Rs. 10000

Entry:

1) Cash A/c Dr.10000

To Land A/c 8000

To P & L A/c 2000

2) P & L A/c Dr.2000

To capital Reserve A/c 2000

(Being profit trfd to capital reserve A/c)

You can directly transfer the profit to capital reserve in order to show less profit and thereby less payment of taxes but this is the violation of accounting principles.

Shivani (Learner) (1881 Points)
Replied 16 September 2013

lokesh sir

why we transfer the profit on sale of land to capital reserve?

what is capital reserve?

thanks

shivani

RAMESH CHANDRA SHARMA (munka istentisztelet) (899 Points)
Replied 23 September 2013

the reason of transferring the profit on sale of fixed asset to capital reserve is that such profit is a capital profit. it is not earned through the main business of the company as capital asset is sold and profit is earned. second thing is that such profit can not be used to pay dividend. there are another example of transferring profit to capital reserve i.e. profit on re-issue of forfeited shares is transferred to capital reserve.

as far as capital reserve is concerned it is a fund which is set aside for some specific purpose and and cant be used for other purpose.

thanks

1 Like

NILA REJESH P (Chartered Accountant) (815 Points)
Replied 04 December 2013

Originally posted by : Chitral Sharma
	Can profit on sale of land directly treansfer to balance sheet as capital reserve without affecting the profit and loss account?	Profit on sale of land other than revaluation should be credited to P/L Account.

Assisi Nilus (3 Points)
Replied 03 January 2023

how do you treat it

Land bought on 1-4-1990

cost: 40lacs

sold a part which has purchase price of 2lacs for 60lacs

Yasaswi Gomes new (Finance ) (4475 Points)
Replied 04 January 2023

As per the books, 2 laks plus appreciation minus revaluation loss. HC madras made a verdict that land must be indexed and the cost will be the cost. Because people sold the land under suspecious conditiins which avoided taxes. So one must find ouy what is the real procedure cause indexation is not a gaap measure yet. Once you kbow the cost

Indexed cost or book Cost =2.5

Nrv= 3

Sold for 5

Bank dr 5

Gain cr 2.5

Land cr 2.5