Priya and Rani were partners in a firm sharing profits and losses in the ratio of 2 : 1. With effect from 1st April, 2019, they agreed to share the profits equally. They prepared a Revaluation Account on this date and an unrecorded asset (Motorbike) worth Rs. 40,000 was found not to have been recorded in the books. Priya was of the view that it should be Credited to Revaluation Account whereas Rani was of the view that it should be Credited to the Capital accounts in equal proportion. Rani agreed to the viewpoint of Priya. Explain what argument must have been put forward by Priya to which Rani agreed ?

Explanation

Priya would have given the argument that unrecorded assets belonged to the old firm when the profit sharing ratio was 2 : 1. Hence it should be Credited to Revaluation Account so that the profit on account of this asset could be shared in 2 : 1.