Can someone tell and explain the journal entry of (vii) of chapter internal reconstruction of advanced accounting. In the given balance sheet in the question P&L Account shows debit balance of 3,00,00

RISHIT · 18 Aug 2025

Ashu it is not given they will earn profit in 3 years they said loss in 3 previous year was 90000 and this loss can be set off against profit of current year which is expected to be 90000 So amount remaining after reducing 90000 from debit balance of p and l shall be taken frok capital reduction

RISHIT · 18 Aug 2025

I think the profit which company will achieve in this year will be 90000 and balance of p and l after removing 90000 Shall be taken out of capital reduction a/c

Jitanshu · 18 Aug 2025

Yes you are right Ashu, but only from examination point of view.In practical situations future profits are ignored and entire balance of p/l is to be setted off through capital reduction account. At the end I will suggest vanshika to solve the question by your method

Ashu · 17 Aug 2025

Jitanshu,there is no use of the prudence concept since we are not providing for profits.

Ashu · 17 Aug 2025

Since the company expects to earn a profit of ₹ 90,000 p.a. consecutively for 3 years and it shall be used to write-off debit balance of P&L Account, hence ₹ 2,70,000 being loss shall be shown in the Balance Sheet under Reserve & Surplus head and ₹ 30,000 shall be written-off from Capital Reduction A/c.

Jitanshu · 17 Aug 2025

It's a very good adjustment. As per my knowledge in this regard, due to prudence, no profits should be recognized unless it is realised. So we will ignore the expectations of profits of rs 90,000 and pass normal entry to write off the debit balance of profits and loss account..... Journal entry..... Capital reduction account Dr. 300,000 To Profits and loss account 300,000 Hope this will held you.