Question

A and B are partners sharing profits in the ratio of 2 : 3. Their Balance Sheet shows Machinery at ₹ 2,50,000; Stock at ₹ 1,00,000 and Debtors at ₹ 2,00,000. C is admitted, and a new profit-sharing ratio is agreed at 3 : 4 : 5. Machinery is revalued at ₹ 1,90,000, and a provision is made for doubtful debts @ 5%. A’s share in the loss on revaluation amounts to ₹ 20,000. The revalued value of the Stock will be ______.

Options

• ₹ 2,20,000

• ₹ 80,000

• ₹ 90,000

• ₹ 1,20,000

Answer 1

A and B are partners sharing profits in the ratio of 2 : 3. Their Balance Sheet shows Machinery at ₹ 2,50,000; Stock at ₹ 1,00,000 and Debtors at ₹ 2,00,000. C is admitted, and a new profit-sharing ratio is agreed at 3 : 4 : 5. Machinery is revalued at ₹ 1,90,000, and a provision is made for doubtful debts @ 5%. A’s share in the loss on revaluation amounts to ₹ 20,000. The revalued value of the Stock will be ₹ 1,20,000.

Explanation:

Calculate the Total Loss on Revaluation:

A’s Share of Loss = `"Total Loss" xx 2/5`

20,000 = `"Total Loss" xx 2/5`

Total Loss = `20,000 xx 5/2`

= 50,000

Loss on Machinery = 2,50,000 − ₹ 1,90,000

= ₹ 60,000

Loss from Provision for Doubtful Debts = `2,00,000 xx 5/100`

= 10,000

Calculate the Change in Stock Value:

Total Loss = Loss on Machinery + Loss on PDD + Change in Stock Value

50,000 = 60,000 + 10,000 + Change in Stock Value

50,000 = 70,000 + Change in Stock Value

Change in Stock Value = 50,000 − 70,000

= − 20,000

The negative value indicates a gain in the value of the stock, or a decrease in loss. The stock value increased by ₹ 20,000.

Revalued Value of Stock = ₹ 1,00,000 + ₹ 20,000

= ₹ 1,20,000