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Class 12AccountancyReconstitution - Admission of a PartnerReservesHard
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The Contingency Reserve is ₹34,000, whereas the related actual liability is determined to be ₹41,000. What is the correct accounting treatment for the liability exceeding the reserve?

Answer and explanation

Correct answer: Debit ₹7,000 to Revaluation Account

The Contingency Reserve of ₹34,000 is used to meet the liability. Since the actual liability is ₹41,000, a shortfall of ₹7,000 remains. This shortfall is a revaluation loss and is therefore debited to the Revaluation Account. Debiting the full ₹41,000 would be incorrect because ₹34,000 is already covered by the reserve. Exam tip: Subtract the available reserve from the actual liability; the balance is debited to Revaluation Account.

Related tags

Contingency ReserveExcess LiabilityRevaluation AccountAdmission Of PartnerRevaluation LossReservesReconstitution Admission Of A PartnerAccountancy
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10 more MCQs
  1. 1At the time of admission of a new partner to whom is general reserve given?
  2. 2At the time of admission how is credit balance of Profit and Loss Account treated?
  3. 3At the time of admission what does debit balance of Profit and Loss Account show?
  4. 4A and B share profits in the old ratio of 3:2. At the time of admission of a new partner, the general reserve is ₹50,000. How much will A receive from the general reserve?
  5. 5X and Y are partners sharing profits in the old ratio of 4:1. The firm's reserve fund is ₹25,000. On reconstitution of the partnership, what share of the reserve fund will Y receive?
  6. 6Why does the new partner not receive a share of the old General Reserve?
  7. 7Which is the correct journal entry for distributing general reserve?
  8. 8Which entry is made for writing off debit balance of Profit and Loss Account?
  9. 9Profit and Loss Account has credit balance ₹30000. A and B share in 2:1. How much will be credited to B?
  10. 10A firm's Profit and Loss Account has a debit balance of ₹18,000. Partners A and B share profits and losses in the old ratio of 5:4. What amount will be debited to A's Capital Account?
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