Question

Arun and Vijay are partners in a firm sharing profits and losses in the ratio of 5:1. Balance Sheet (Extract) Liabilities ₹ Assets ₹ Machinery 40,000 If the value of machinery reflected in the balance sheet is overvalued by 33 %, find out the value of Machinery to be shown in the new Balance Sheet:​

Answer 1

Correct question:

Arun and Vijay are partners in a firm sharing profits and losses in the ratio of 5:1.

$\begin{array}{|c|c|c|c|}\cline{1-4}\bf Liabilities& \bf Rs & \bf \ \ \ Assets\ \ \ \ & \bf Rs\\\cline{1-4}&& \sf Machinery & 40,000\\\cline{1-4}\end{array}$

If the value of machinery reflected in the balance sheet is overvalued by 33 1/3%, find out the value of Machinery to be shown in the new balance sheet.

Given:

• Arun and Vijay are partners in a firm, sharing profits and losses in the ratio 5:1.
• Their balance sheet shows machinery at Rs 40,000 and is assumed to be overvalued by 33 1/3%.

To find: The actual value of machinery to be shown in the new balance sheet.

Answer:

Let the actual value of machinery be assumed as 'x'.

As per the question,

33 1/3% of x = Rs 40,000 - x

(100/3)(1/100) × x = Rs 40,000 - x

x/3 = Rs 40,000 - x

x/3 + x = Rs 40,000

(x + 3x)/3 = Rs 40,000

x + 3x = Rs 1,20,000

4x = Rs 1,20,000

x = Rs 1,20,000 ÷ 4

x = Rs 30,000

Therefore, the actual value of machinery to be shown in the new balance sheet is Rs 30,000.

• When an item is overvalued, its actual value is to be lesser than the value reflected in the balance sheet. Overvaluation of items is to be recorded on the debit side of the revaluation account.
• When an item is undervalued, its actual value is to be greater than the value reflected in the balance sheet. Undervaluation of items is to be recorded on the credit side of the revaluation account.