Question

What does profit and loss adjustment account measured?

Answer 1

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.

On the other hand, Revaluation Account as mentioned in the study material is prepared just to revalue the assets and the liabilities on the eve of the reconstitution of partnership.
Hope the difference between all the four aforementioned accounts is clear to you. If still you have any doubt, then please get back to us.