Asset Revaluation

The governing concept is that admission of a partner changes the relationship among the partners, so assets and liabilities should reflect their appropriate current values before the new profit-sharing arrangement begins. Revaluation identifies the profit or loss arising from changes in those values. That result belongs to the old partners because it accrued before admission. Therefore, option A is correct: the purpose is to present assets at their correct revised or current values and to distribute the resulting revaluation gain or loss fairly. Paying salaries, increasing a bank loan, and closing a sales account are unrelated objectives and do not explain the function of the Revaluation Account.

Correct value of liabilities helps find old profit or loss. Treat increase in liability as loss and decrease as gain.

Debtors are assets and increase in asset is a gain. Credit asset increase to Revaluation Account.

Debtors are an asset. A decrease in their value represents a decrease in assets and a loss on revaluation, so it is recorded on the debit side of the Revaluation Account. In contrast, an increase in an asset is credited to the Revaluation Account. Exam tip: decrease in an asset means debit the Revaluation Account; increase means credit it.

When liability decreases the liability account is debited and gain is credited. Remember liability decrease means gain.

Increase in liability increases burden on the firm so Revaluation Account is debited. Treat it as loss.

Finding an unrecorded asset is a gain so Revaluation Account is credited. Treat unrecorded asset as gain.

An unrecorded liability is a loss for the firm so Revaluation Account is debited. Put new liability on the debit side.

Increase in provision reduces realizable value of debtors so it is a loss. Debit increase in provision.

Decrease in provision is a gain because deduction from debtors is reduced. Credit decrease in provision.

Increase in stock value = ₹15,000 − ₹12,000 = ₹3,000. An increase in the value of an asset is credited to the Revaluation Account because it creates a gain. Therefore, ₹3,000 is correct. ₹12,000 is the original book value and ₹15,000 is the revised value, not the revaluation gain. In exams, calculate the difference between the revised and book values.

Direct answer: Option A, ₹4,000 debit in the Revaluation Account. The computer’s book value is ₹25,000 and its new value is ₹21,000. The decrease is ₹25,000 − ₹21,000 = ₹4,000. A fall in an asset’s value is a loss for the firm. In revaluation accounting, a decrease in an asset is recorded on the debit side of the Revaluation Account. Option A is therefore correct. Option B, ₹4,000 credit, reverses the entry; an asset increase, not a decrease, is credited. Option C, ₹21,000 debit, uses the new total value instead of the amount of decrease. Option D, ₹25,000 credit, uses the old value and also places it on the wrong side. The important distinction is between the value and the change in value: record only ₹4,000. Memory cue: asset down means revaluation debit; asset up means revaluation credit.

Increase in building by ₹12000 is a gain. Increase in an asset like building goes to credit side.

Decrease in creditors is ₹5000 and it is a gain. Credit Revaluation Account when liability falls.

Outstanding expenses represent a liability. The increase is ₹7,500 − ₹6,000 = ₹1,500. An increase in a liability causes a loss, so ₹1,500 is debited to the Revaluation Account. Exam tip: record only the amount of increase or decrease, not the revised total liability.

Revaluation profit is distributed among the old partners in their old profit-sharing ratio. The total ratio is 5 + 3 = 8, so Reena’s share is ₹16,000 × 5/8 = ₹10,000. ₹8,000 represents half the profit, not Reena’s 5/8 share. Exam tip: Always use the old ratio to distribute revaluation profit or loss.

A revaluation loss is shared by the old partners in their old profit-sharing ratio. Sohan’s share is 3/10, so his loss = ₹20,000 × 3/10 = ₹6,000. ₹10,000 represents half the loss, not Sohan’s 3/10 share. Exam tip: Distribute revaluation profit or loss among the old partners in the old ratio.

When credit side is higher there is revaluation profit. Distribute it among old partners in old ratio.

Direct answer: Option B, loss. A Revaluation Account compares gains and losses caused by changes in asset and liability values. Items reducing the firm’s value are debited, while increases or gains are credited. If the debit side is greater than the credit side, total losses exceed total gains. The difference is therefore a revaluation loss, which is transferred to the old partners’ capital or current accounts in their old profit-sharing ratio. Option A, profit, is wrong because profit occurs when the credit side exceeds the debit side. Option C, new ratio, is not an accounting result; a ratio is used for sharing, not for naming the balance. Option D, bank surplus, is unrelated because revaluation does not automatically mean extra bank cash. The amount of loss would be debit total minus credit total. Memory cue: debit more means loss; credit more means profit.

Both situations are gains for the firm so they are recorded on the credit side. Credit gain items.

Both situations are losses for the firm so they are recorded on the debit side. Debit loss items.

The governing rule is that a revaluation profit arising before the admission of a new partner is transferred to the old partners in their old profit-sharing ratio. The ratio 2:1 contains three total parts, and the partner with the larger share is entitled to two parts. Therefore, the larger partner’s allocation is ₹9,000 × 2/3 = ₹6,000. The remaining ₹3,000 goes to the other partner. Hence, option C is correct. Option A is the smaller partner’s share. Option B would result from an equal division, and option D transfers the entire revaluation profit to one partner, ignoring the agreed ratio. The calculation also confirms that both allocations together equal the full ₹9,000 profit.

A revaluation loss is a loss of the firm, so it is transferred to the old partners’ capital or current accounts in their old profit-sharing ratio. If the old partners share equally, the loss must be divided into equal parts. The answer therefore depends on the statement implying two old partners, as indicated by the paired answer choices.

The total loss is ₹12,000. For two equal partners, each share is ₹12,000 ÷ 2 = ₹6,000. Each partner’s capital is reduced by ₹6,000, so option B follows. If there were a different number of old partners, the division would change; that assumption should remain explicit.

Unrecorded liability is a loss so it is debited to Revaluation Account. Link creation of liability with debit side.

Furniture is an asset and is debited when brought into books. The other side is credit to Revaluation Account.