Book value of stock ₹40,000. However the stock is found overvalued by ₹4,000/-. The amount ₹4,000 will be:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) - Debited to Revaluation A/c.
The amount ₹4,000 will be debited to Revaluation A/c. Since the stock is overvalued, it means its book value is higher than its actual value. When this overvaluation is corrected, the book value needs to be decreased. Debiting the Revaluation A/c reduces the book value of the stock, reflecting the overvaluation. Thus, the journal entry for this transaction is-
Revaluation A/c Dr. ₹4,000
To Stock A/c ₹4,000