Question

Murthy and Madhavan were partners in a firm sharing profits and losses in the ratio of 3 : 1. They admitted Shriniwas as a new partner in the firm. On admission of Shriniwas, there existed a balance of ₹8,00,000 in debtors account and a balance of ₹50,000 in provision for bad debts account. Debtors of ₹60,000 proved bad and hence were written off. It was decided to maintain a provision for bad debts at 10% of the debtors. The revaluation account will be debited by \_\_\_\_\_ on the reconstitution of the firm.

• A. ₹80,000
• B. ₹10,000
• C. ₹84,000
• D. ₹74,000

Hint:

Always adjust for actual bad debts first, then recalculate provision on the remaining debtors. The difference is charged to Revaluation Account.

Answer 1

The Correct Option is C

Let us break the adjustment into three components: 1. Write-off of bad debts:
Debtors proved bad = ₹60,000
This must be directly debited to Revaluation A/c.
$\Rightarrow$ Revaluation A/c Dr. ₹60,000
2. Adjustment of provision for bad debts:
Debtors after writing off = ₹8,00,000 – ₹60,000 = ₹7,40,000
Required provision @10% = ₹74,000
Existing provision = ₹50,000
$\Rightarrow$ Additional provision = ₹74,000 – ₹50,000 = ₹24,000
This increase in provision is also debited to Revaluation A/c.
3. Total debit to Revaluation Account:
= Bad debts written off + Additional provision
= ₹60,000 + ₹24,000 = ₹84,000
Hence, the total amount debited to the Revaluation A/c = ₹84,000.