Question

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Why is profit and loss adjustment account prepared ?

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Answer 1

Answer:

▶Profit and loss adjustment is another name for revaluation account but in the study materials of chap 1 - interest on capital , PL adjustment account. ✔

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Answer 2

Answer:

Profit and Loss Adjustment Account is very much a synonym to Revaluation Account (in case of admission and retirement). In Class-XI, you must have learnt about Profit and Loss Account, where, we derive Net Profit or Net Loss as the balancing figures. Now, once, we have determined the amount of Net Profit (or Net Loss), if any item is found which got omitted to be recorded in the Profit and Loss Account (which is a charge against profit), in that case, we prepare Profit and Loss Adjustment. (This is because it is not advisable to alter the values that are already recorded in the Profit and Loss Account for the taxation purposes). Profit and Loss Appropriation Account is then followed by the preparation of Profit and Loss Adjustment Account. This is to say that P&L Appropriation Account is prepared as the third account after P&L A/c and P&L Adjustment Account. The P&L Appropriation A/c is prepared to appropriate the actual Net Profit.

Explanation:

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