Question

Rishabh and Alex are partners in a firm sharing profits and losses in the ratio of 3 : 2. At the time of Manpreet’s admission, the value of the Motor Vehicle in the firm’s Balance Sheet was ₹ 1,50,000. While doing the re-assessment, it was found overvalued by 25%.

Calculate the value of Motor Vehicle to be shown in the Balance Sheet of the reconstituted firm.

Options

• ₹ 1,12,500

• ₹ 1,20,000

• ₹ 1,87,500

• ₹ 2,00,000

Answer 1

₹ 1,20,000

Explanation:

When an asset is overvalued by 25%, it means the current Book Value represents 125% of its actual value (100% actual + 25% overvaluation).

`125/100 xx x` = 1,50,000

x = `(1,50,000 xx 100)/125`

x = 1,200 × 100

x = 1,20,000