Comprehension Passage
Radha, Sheela, and Meena were in partnership sharing profits and losses in the proportion of 3:2:1. On April 1, 2019, Sheela retires from the firm. On that date, their Balance Sheet was as follows:
Balance Sheet as on April 1, 2019
| Liabilities | Amount (Rs.) |
|---|---|
| Trade Creditors | 3,000 |
| Bills Payable | 4,500 |
| Expenses Owing | 4,500 |
| General Reserve | 13,500 |
| Capitals: | |
| Radha | 15,000 |
| Sheela | 15,000 |
| Meena | 15,000 |
| Total | 70,500 |
| Assets | Amount (Rs.) |
|---|---|
| Cash-in-Hand | 1,500 |
| Cash at Bank | 7,500 |
| Debtors | 15,000 |
| Stock | 12,000 |
| Factory Premises | 22,500 |
| Machinery | 8,000 |
| Loose Tools | 4,000 |
| Total | 70,500 |
The terms were:
(a) Goodwill of the firm was valued at Rs. 13,500.
(b) Expenses owing to be brought down to Rs. 3,750.
(c) Machinery and Loose Tools to be valued at 10% less than their book value.
(d) Factory premises are to be revalued at Rs. 24,300.
The revaluation of machinery and loose tools at 10% less than their book value indicates which of the following adjustments in the final accounts?
1
The total value of machinery and loose tools is increased by 10%
2
The assets’ value is reduced by 10%, and the reduction is transferred to the partners' capital accounts
3
The depreciation on machinery and loose tools is increased
4
The machinery and loose tools are adjusted against creditors' accounts