Ram and Balram are partners in a firm sharing profit and losses in the ratio of 2:1.
An extract of Balance Sheet as of 31st March 2022
| Liabilities | Rs. | Assets | Rs. |
|---|---|---|---|
| Furniture | 80,000 |
If the value of above furniture is overvalued by 33⅓%, choose the value of furniture to be shown in the new Balance Sheet out of the following:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 60,000
“Overvalued by 33⅓%” means the book figure of Rs. 80,000 is 33⅓% more than the true value of the furniture. So the true value is the base (100%) and the book figure is 133⅓% of it. On reconstitution the furniture is brought down to its true value, and that value goes into the new Balance Sheet.
True value × 133⅓/100 = Rs. 80,000
True value = Rs. 80,000 × 3/4
True value = Rs. 60,000
Fall in value (debited to the Revaluation Account) = Rs. 80,000 − Rs. 60,000 = Rs. 20,000
Taking 33⅓% of Rs. 80,000 (Rs. 26,667) and deducting it would treat the book figure as the base, which is not what “overvalued by” means.