Reserves and Surplus

This discussion clarifies the accounting treatment for selling machinery at a loss. When machinery costing Rs. 10,000 and with a book value of Rs. 8,000 is sold for Rs. 9,000, the Rs. 1,000 difference is transferred to a Capital Reserve. The initial Rs. 1,000 profit is recognised in the Profit & Loss account before being moved to the Reserves and Surplus section after account finalisation.