Treatment of revaluation reserve

This may take place in the business of Real estate.

 

Amritha Agarwala,

 

Coming to the solution, Whenever fixed assets are converted into stock in trade the profit on such conversion is taken as capital reserve and not revaluation reserve. This is because RR is created for those fixed assets which exist in the current block of assets. As the Land is being converted in to stock-in-trade hence Land is no more in the block of assets. Therefore such profit on conversion can be treated as a capital reserve (one time profit).

 

Stock Account Dr. xxx

      To Land Account                             xxx

      To Capital Reserve (If Any-Profit) xxx

 

If loss, Charge it to the Profit and loss Account in the year in which the conversion took place.

 

Thanks and Regards,

 

Sriram.V