Question

Ram and Shyam are partners sharing profits/losses equally. They admitted Radha into partnership for \(\frac{1}{3}^{rd}\) 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?

• A. Revaluation A/c is debited by 15,000
• B. Revaluation A/c is debited by 13,500
• C. Revaluation A/c is credited by 15,000
• D. Revaluation A/c is credited by 13,500

Answer 1

The Correct Option is C

Here's how to determine the impact on the Revaluation Account when Machinery is undervalued:

1. Understanding Undervaluation: If machinery is undervalued, it means its book value is less than its actual worth. We need to increase the value of the machinery to its correct worth.
2. Calculating the Actual Value: The book value (₹1,35,000) represents 90% of the actual value (since it's undervalued by 10%).
3. Determine increase in value: We need to determine the increase in value.
   Undervaluation=10%
   Book Value=₹1,35,000
   So, 90%=₹1,35,000
   So, 10%= (₹1,35,000/90)*10 = ₹15,000

Revaluation Account Treatment:

When an asset's value increases, the Revaluation Account is credited. This is because the increase in asset value represents a profit for the existing partners.

Therefore, the Revaluation Account will be credited by ₹15,000.

The correct answer is:

(3) Revaluation A/c is credited by 15,000

Explanation using LaTeX:

Let Actual Value be \( x \)
\( 0.9x = 135,000 \)
\( x = \frac{135,000}{0.9} = 150,000 \)
Increase in Value = \( 150,000 - 135,000 = 15,000 \)

Since the value of the machinery is increasing, it's a credit to the Revaluation Account.