Explanation:

Let the cost price of the watch on which loss is incurred be x

Therefore the cost price of the other watch will be 840 - x

Now loss incurred on the 1st watch = (12/100)*x

Profit on the 2nd watch = (16/100)*(840-x)

Now as these are equal:

(12/100)*x = (16/100)*(840-x)

12/16 = (840-x)/x

3x = 4(840 - x)

7x = 4*840

x = 120*4 = 480

The cost of 1st watch = 480

The cost of 2nd watch = 840 - x = 840 - 480 = 360

Hence, option 1 is the correct answer.