Asset Revaluation

Revaluation adjusts gains or losses existing before admission among old partners. Remember that it is shared in the old ratio.

Increase in asset value is a gain for the firm so it is credited to Revaluation Account. Treat appreciation as a gain in exams.

Decrease in asset value is a loss for the firm so it is debited. Link fall in asset value with loss in exams.

Revaluation profit belongs to the period before admission so it belongs to old partners. Share it in the old profit-sharing ratio.

Revaluation loss relates to the period before admission so old partners bear it in the old ratio. Do not include the new partner.

The increase is ₹10000 and it is a gain. In exams only the difference amount is recorded not the full value.

The governing concept is that a decrease in the book value of an asset represents a loss on revaluation. The reduction is calculated as: original value ₹30,000 minus revised value ₹24,000 = ₹6,000. Since this loss reduces the firm’s net assets, ₹6,000 is debited to the Revaluation Account. It is ultimately transferred to the capital accounts of the old partners in their old profit-sharing ratio. Option B is incorrect because a credit represents a gain, which would arise from an increase in asset value. Options C and D use the wrong amount and do not represent the change in value.

An unrecorded asset is brought into books so the asset is debited and gain is credited. Treat it as a gain.

An unrecorded liability is a loss for the firm so Revaluation Account is debited. Treat creation of liability as a loss.

A new provision reduces the realizable value of debtors so it is a loss. Debit creation of provision in exams.

Reduction in provision decreases a charge or liability so it is a gain. Credit reduction in provision.

Direct answer: A credit balance of the Revaluation Account means a revaluation profit, so option A is correct. Revaluation records increases or decreases in assets and liabilities at the time of reconstitution. Asset increases and liability decreases are credited because they create gains; asset decreases and liability increases are debited because they create losses. If the credit total is greater than the debit total, the difference is a profit. This profit is transferred to the old partners’ capital or current accounts in their old profit-sharing ratio. Option B is wrong because a debit balance, not a credit balance, represents revaluation loss. Option C is unrelated: cash shortage is a separate adjustment. Option D is also unrelated because a new partner’s capital is recorded in the partner’s capital account, not represented by the revaluation balance. Exam cue: credit excess means gain; debit excess means loss.

The governing rule is that the balance of the Revaluation Account represents the net result of changes in assets and liabilities. If the debit side exceeds the credit side, the account has a debit balance and the result is a revaluation loss. This loss is transferred to the capital accounts of the old partners in their old profit-sharing ratio. Therefore, option B is correct. A credit balance would indicate a revaluation profit, so option A reverses the accounting treatment. An unrecorded asset is only one possible item affecting the account and does not define a debit balance; cash profit is unrelated to this specific account.

To distribute profit the Revaluation Account is debited to close it. Profit is credited to capital accounts.

Loss reduces old partners' capital so their capital accounts are debited. Debit loss to capital accounts.

Revaluation profit is distributed among the old partners in their old profit-sharing ratio. Amit's share is \(₹10000 \times \frac{3}{3+2} = ₹6000\), so option C is correct. ₹5000 represents one-half of the total profit, whereas Amit is entitled to 3 out of 5 parts. Exam tip: distribute revaluation profit or loss in the old ratio, not the new ratio.

Revaluation profit or loss is transferred to the partners’ capital or current accounts in their old profit-sharing ratio. Since Reena and Meena share equally, the ₹8,000 loss is divided into two equal parts: ₹8,000 ÷ 2 = ₹4,000. Thus option B is correct. The other options either divide the loss incorrectly or assign the entire loss to each partner.

Revaluation Account is prepared to find profit or loss so it is a nominal account. Remember nominal account rules.

When building value increases Building Account is debited and Revaluation Account is credited. Debit the asset when it increases.

When stock value falls Revaluation Account is debited and Stock Account is credited. Credit the asset when it decreases.

A decrease in liability is a gain for the firm so Revaluation Account is credited. Treat liability reduction as gain.

An increase in liability increases burden on the firm so it is a loss. Debit Revaluation Account when liability increases.

Reduction in creditors by ₹2000 is a gain so it is credited to Revaluation Account. Liability decrease is a gain.

Outstanding salary is a liability and when recorded first it is an unrecorded liability. Debit it to Revaluation Account.

Unrecorded investments are assets so they are credited as a gain in Revaluation Account. Treat unrecorded asset as gain.