Problem in as 10...?

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CA Ragini

405 Points Posted on 24 January 2012

PLEASE EXPLAIN ME THE BELOW QUESTION OF AS 10 WITH DETAILED EXPLAINATION AND WORKINGS-

On 1-4-2001 induga ltd had sold some of its fixed assets for Rs.100 lacs [ wdv rs 250 lacs, these assets were revalued earlier]. As on 1-04-2001 the revaluation reserve corresponding to these assets stood at Rs 200 lacs. The profit on sale of property Rs 200 lacs shown in profit and loss a/c represented the transfer of this amount . Loss on sale of asset was included in the cost of goods sold.Comment on the treatments to be made regarding cost of goods sold , amt to be t/f to general reserve and treatments in revaluation reserve.

Replies (2)

Prashanth

Chartered Accountant

2322 Points Posted on 24 January 2012

@ Ragini,

Normally if their is any loss on sale of fixed assets in such case it is charged to P&L account,but in case of revalued asset and if their is any revalued reserve (in this case there is a reserve of 200) then i such case the loss is to be adjusted against such revaluation reserve

Now in your case their is aloss of150 .i.e (100-250),which should be adjusted against revaluation reserve of 200,but the said company given wrong treatment by debiting to cost of goods sold and the revaluation reserve of 200 is credited to P&L account in the name of profit on loss of property

Entries passed by the company is

1.Revaluation account Dr 200

To profit on sale of property 200

2.Bank Account Dr 100

Cost of Goods sold account Dr 150

To asset account 250

Rectfication entry is

Profit on sale of property Dr 200

To Cost of Goods sold account 150

To General reserve 50

CA Raha Sk

Professional

150 Points Posted on 24 January 2012

Originally posted by : Prashanth
	@ Ragini, Normally if their is any loss on sale of fixed assets in such case it is charged to P&L account,but in case of revalued asset and if their is any revalued reserve (in this case there is a reserve of 200) then i such case the loss is to be adjusted against such revaluation reserve Now in your case their is aloss of150 .i.e (100-250),which should be adjusted against revaluation reserve of 200,but the said company given wrong treatment by debiting to cost of goods sold and the revaluation reserve of 200 is credited to P&L account in the name of profit on loss of property Entries passed by the company is 1.Revaluation account Dr 200 To profit on sale of property 200 2.Bank Account Dr 100 Cost of Goods sold account Dr 150 To asset account 250 Rectfied entry is Profit on sale of property Dr 200 To Cost of Goods sold account 150 To General reserve 50