Ram and Shyam are partners sharing profits/losses equally. They admitted Radha into partnership for 1/3rd share. At the time of her admission, the book value of Machinery was ₹1,35,000. It was provided at the time of admission that the Machinery was undervalued by 10%. Show its impact on Revaluation A/c?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Revaluation A/c is credited by ₹15,000
“Undervalued by 10%” means the book value is 10% below the true value, so the book value is 90% of the true value. An increase in the value of an asset is a gain, credited to the Revaluation Account.
True value:
= ₹1,35,000 × 100/90
= ₹1,50,000
Increase = ₹1,50,000 − ₹1,35,000 = ₹15,000 (credit to Revaluation A/c)
₹13,500 is 10% of the book value; it treats the 10% as a share of the book value, not of the true value.