Book value of stock ₹40,000. However the stock is found overvalued by…

The correct answer is Option (1) → Debited to Revaluation A/c

Stock overvalued by ₹4,000 must be brought down to ₹36,000. A decrease in the value of an asset is a loss, so the Revaluation Account is debited and the Stock Account credited.

Revaluation A/c Dr. ₹4,000
  To Stock A/c ₹4,000

Why the other options are incorrect

• Option (2) Credited to Revaluation A/c — Incorrect. The Revaluation Account is credited with an increase in the value of an asset, which is a gain.

• Option (3) Debited to Partner's capital A/c — Incorrect. Individual changes go to the Revaluation Account; only its net balance is later carried to the partners.

• Option (4) Credited to Partner's capital A/c — Incorrect. It is a loss, and it reaches the partners only through the net balance of the Revaluation Account.