Can profit on sale of land directly treansfer to balance sheet as capital reserve without affecting the profit and loss account?
Credit to P/L Account
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?
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.
lokesh sir
why we transfer the profit on sale of land to capital reserve?
what is capital reserve?
thanks
shivani
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
| 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. |
how do you treat it
Land bought on 1-4-1990
cost: 40lacs
sold a part which has purchase price of 2lacs for 60lacs
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
Your are not logged in . Please login to post replies
Click here to Login / Register
Kothari Jain Patil & Chartered Accountants
Pune
CA Inter
View Details
Interactive Media Pvt Ltd.
New Delhi
CA Inter
View Details
Anupam Parashar & Co.
Ghaziabad
CA Final
View Details
CCI
Pro
India's largest network for
finance professionals