Question

Pass journal entries to record the following transactions on the admission of a new partner:

1. Land and Building is undervalued by ₹ 2,00,000.
2. Stock is overvalued by 20% (Book Value of Stock ₹ 60,000).
3. Provision to be made for compensation of ₹ 20,000 to an ex-employee.
4. Sundry Debtors appeared in the books at ₹ 1,50,000. They are estimated to produce not more than ₹ 1,30,000.
5. Creditors include an amount of ₹ 10,000 received as commission.
6. Value of Machinery is to be decreased to ₹ 1,20,000 (Вook Value ₹ 2,00,000).
7. Value of Machinery is to be decreased by ₹ 1,20,000 (Book Value ₹ 2,00,000).
8. Expenses on revaluation amount to ₹ 8,000 have been paid by partner X.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Land and Building A/c   ...Dr.		2,00,000
	To Revaluation A/c			2,00,000
	(Being value of land & building increased to correct the undervaluation)
2.	Revaluation A/c   ...Dr.		10,000
	To Stock A/c			10,000
	(Being value of stock reduced to correct the 20% overvaluation)
3.	Revaluation A/c   ...Dr.		20,000
	To Provision for Employee Compensation A/c			20,000
	(Being provision created for liability towards an ex-employee)
4.	Revaluation A/c   ...Dr.		20,000
	To Provision for Doubtful Debts A/c			20,000
	(Being provision created for expected bad debts: ₹ 1,50,000 − ₹ 1,30,000)
5.	Creditors A/c   ...Dr.		10,000
	To Revaluation A/c			10,000
	(Being reduction in creditors as it incorrectly included commission received)
6.	Revaluation A/c   ...Dr.		80,000
	To Machinery A/c			80,000
	(Being value of machinery decreased to ₹ 1,20,000: ₹ 2,00,000 − ₹ 1,20,000)
7.	Revaluation A/c   ...Dr.		1,20,000
	To Machinery A/c			1,20,000
	(Being value of machinery decreased by ₹ 1,20,000)
8.	Revaluation A/c   ...Dr.		8,000
	To X's Capital A/c			8,000
	(Being revaluation expenses paid by partner X credited to his capital account)

Working note:

1. Calculation of Overvalued Stock

Let the true (actual) value of stock be x.

Book Value = True Value + 20% of True Value

60,000 = x + 0.20x

60,000 = 1.20x

`x = (60,000)/1.20 = 50,000`

Reduction in Stock value: 60,000 − 50,000 = 10,000

2. Note on "To" vs "By" for Machinery

Decreased TO ₹ 1,20,000: The final value becomes ₹ 1,20,000. Hence, the actual drop (loss) recorded is the difference: ₹ 2,00,000 − ₹ 1,20,000 = ₹ 80,000

Decreased BY ₹ 1,20,000: The value drops directly by the specified amount. Hence, the full ₹ 1,20,000 is recorded as a loss.