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

Answer: (C)

Revaluation A/c is credited by 15,000

Answer 2

When Radha is admitted into the partnership, it is important to adjust the value of the machinery to its true value because it is undervalued. The steps to calculate the impact on the Revaluation Account are as follows: 1. Book Value of Machinery: 1,35,000 2. Undervaluation Percentage: 10% 3. Amount of Undervaluation: $\text{Undervaluation} = \text{Book Value} \times \left(\frac{10}{100}\right) = 1,35,000 \times 0.10 = 13,500$ Since the machinery is undervalued, the Revaluation Account will be credited with the amount of undervaluation to reflect the increase in asset value: $\text{Revaluation A/c} \quad \text{credited by} \quad 13,500$ However, the total revaluation impact on partners’ capital accounts will also reflect the total book value increase: $\text{Adjusted Value of Machinery} = \text{Book Value} + \text{Undervaluation} = 1,35,000 + 13,500 = 1,48,500$ Thus, the final adjustment for revaluation in the Revaluation A/c will be as follows: $\text{Revaluation A/c is credited by} \quad 15,000$ Therefore, the correct impact on the Revaluation A/c is that it is credited by 15,000.