During the process of Internal Reconstruction, JAY Ltd has come across the following adjustment: There is a contingent liability for which no…

CA Intermediate · Advanced Accounting · PYQS · May 2025
During the process of Internal Reconstruction, JAY Ltd has come across the following adjustment: There is a contingent liability for which no provision had been made. This contingent liability was settled at 7,500 and also - 6,000 was recovered from the insurance company in this regard. Which of the following is the correct treatment for the above adjustment?
(A) Reconstruction A/c Dr - 1,500 and Bank A/c Cr - 1,500
(B) Reconstruction A/c Dr - 7,500 and Bank A/c Cr - 7,500
(C) Contingent Liability A/c Dr - 1,500 and Bank A/c Cr - 1,500
(D) Profit and Loss A/c Dr 1,500 and Bank A/c Cr - 1,500

Suggested Answer and Working Notes:

Correct Answer: Option (A)

Reconstruction A/c Dr - 1,500 and Bank A/c Cr - 1,500

Topics: Amalgamation of Companies

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