Asset Revaluation

Correct answer: A. ₹6,000

A revaluation loss is shared by the old partners in their old profit-sharing ratio. Total ratio parts = 1 + 3 + 2 = 6. The second partner’s share = ₹12,000 × 3/6 = ₹6,000. Therefore, option A is correct. In such questions, first find the total ratio parts and then multiply by the concerned partner’s ratio share.

Correct answer: A. The old partners’ capital will increase

A revaluation profit belongs to the old partners and is credited to their Capital Accounts in their old profit-sharing ratio. A credit increases the balance of a Capital Account, so their capital increases. Exam tip: add a revaluation profit to capital and deduct a revaluation loss from it.

Correct answer: A. Capital will decrease

Revaluation loss is debited to the old partners’ capital accounts, which reduces the balance of those accounts. Therefore, their capital decreases. In contrast, revaluation profit is credited and increases capital. Exam tip: remember loss as debit and profit as credit in the Revaluation Account.

Correct answer: A. ₹4500 profit

A credit balance in the Revaluation Account represents a profit because the credit side exceeds the debit side. Profit = ₹12500 − ₹8000 = ₹4500. Therefore, the correct answer is ₹4500 profit. Exam tip: subtract the smaller total from the larger total and identify whether the larger side is debit or credit.

Correct answer: A. ₹4500 loss

A Revaluation Account compares the value of gains and increases in assets with losses and decreases in assets. Its debit side records losses, while its credit side records gains. The side with the larger total determines the result. Therefore, when debit is ₹13,500 and credit is ₹9,000, the debit side is greater by ₹4,500. This represents a revaluation loss, so option A is correct.

The calculation is ₹13,500 − ₹9,000 = ₹4,500. Since debit exceeds credit, the difference is a debit balance and is transferred to the old partners’ capital or current accounts in their old profit-sharing ratio. It would be incorrect to call this a profit merely because both sides contain amounts; the larger debit total clearly shows a loss. Thus, the balance is ₹4,500 loss.

Correct answer: A. When there is no change in the value of an asset

If the book value of an asset remains unchanged, no entry is made for that asset in the Revaluation Account. An increase in an asset’s value is credited as a gain, while a decrease in a liability is also credited. An unrecorded asset found during reconstitution is credited to the Revaluation Account. Exam tip: record only those assets and liabilities whose values or recognition have changed.

Correct answer: A. Nothing

When value remains same there is neither gain nor loss. Do not record such asset in Revaluation Account.

Correct answer: A. Equally

When ratio is not given partners are generally treated equal. Share equally if no instruction is given.

Correct answer: A. ₹3500

Revaluation profit is distributed among the old partners in their old profit-sharing ratio. Since the ratio is equal, it is 1:1; therefore, each partner receives ₹7000 × 1/2 = ₹3500. Exam tip: Revaluation profit or loss is transferred to the old partners’ accounts before the admission of the new partner.

Correct answer: A. ₹2,500

Revaluation loss is distributed among the old partners in their old profit-sharing ratio. Since the ratio is 1:1, each partner’s share is ₹5,000 × 1/2 = ₹2,500. Option B is incorrect because ₹5,000 is the total loss, not the loss of each partner. Exam tip: Revaluation loss reduces the old partners’ capital or current accounts.

Correct answer: A. Decrease in liability

The governing rule of a Revaluation Account is that an increase in an asset or a decrease in a liability creates a gain, while a decrease in an asset or an increase in a liability creates a loss. When a liability decreases, the firm is relieved from part of its obligation, so its net worth improves. Therefore, a decrease in liability is recorded on the credit side of the Revaluation Account and contributes to revaluation profit. A decrease in an asset and an increase in a liability are normally debit items because they reduce net assets. A new provision is also generally treated as a liability or expense adjustment and does not represent this gain.

Correct answer: A. Decrease in asset

A decrease in the value of an asset reduces the firm’s net assets, so it is recorded on the debit side of the Revaluation Account as a loss. In contrast, an unrecorded asset and a decrease in liability generally produce a gain and are credited. Exam tip: debit decreases in assets and increases in liabilities; credit increases in assets and decreases in liabilities.

Correct answer: A. ₹3000 credit

An unrecorded prepaid insurance balance is an asset belonging to the firm. When it is discovered during reconstitution, the firm obtains an economic benefit that was not previously shown in the books. The asset is therefore recognized at its stated amount of ₹3,000, and the corresponding credit is made to the Revaluation Account because the discovery produces a revaluation gain. A debit would be appropriate for a reduction in an asset, not for a newly identified asset. No entry is incorrect because the item must be brought into the books, while a capital debit would not show the nature or source of this adjustment.

Correct answer: A. ₹4,200 debit

Commission payable is an unrecorded liability. Recording it increases the firm’s liabilities by ₹4,200, which represents a loss; therefore, the Revaluation Account is debited by ₹4,200. Crediting it would be incorrect because the recognition of an additional liability is not a gain. Exam tip: An unrecorded liability is debited to the Revaluation Account.

Correct answer: A. Credit side ₹7000

The relevant accounting concept is that an appreciation in the book value of an asset is a revaluation gain. The amount recorded is not the entire revised value; it is only the increase over the old carrying amount. Here, the increase is calculated as ₹82,000 − ₹75,000 = ₹7,000. Since this increase improves the firm’s net assets, ₹7,000 is entered on the credit side of the Revaluation Account. Option B reverses the normal treatment of asset appreciation. Options C and D use the old or new total value rather than the change in value, so they do not represent the revaluation adjustment.

Correct answer: A. Debit side ₹8000

Decrease in warehouse is ₹8000 so it is a loss and goes to debit side. Treat asset decrease as loss.

Correct answer: A. ₹13,000

An increase in the value of an asset is recorded as a gain in the Revaluation Account. A decrease in a liability is also a gain and is recorded on the gain side. Therefore, total gain items = ₹9,000 + ₹4,000 = ₹13,000. ₹5,000 is incorrect because both amounts represent gains and should not be offset against each other. In the exam, add asset increases and liability decreases while calculating gains.

Correct answer: A. ₹9,000

A decrease in an asset’s value of ₹6,500 and an increase in a liability of ₹2,500 are both losses recorded on the debit side of the Revaluation Account. Therefore, total loss = ₹6,500 + ₹2,500 = ₹9,000. Choosing ₹4,000 would incorrectly subtract the two amounts. Exam tip: add asset decreases and liability increases when calculating revaluation loss.

Correct answer: A. ₹5500 profit

The governing principle is that the net result in a Revaluation Account is obtained by comparing total gains with total losses. Gains are represented by credit items and losses by debit items. In this case, total gains are ₹16,000 and total losses are ₹10,500. The excess of gains is ₹16,000 − ₹10,500 = ₹5,500. Because the credit total is higher, the difference is a net revaluation profit of ₹5,500, which is transferred to the partners’ capital or current accounts in their agreed profit-sharing ratio. Option B incorrectly reverses the sign, while option C adds both figures and option D ignores the gains.

Correct answer: A. ₹3500 loss

Direct answer: The net result is option A, a loss of ₹3,500. Revaluation loss items total ₹14,500 and gain items total ₹11,000. Compare the two totals: ₹14,500−₹11,000=₹3,500. Because loss items are greater, the debit side exceeds the credit side by ₹3,500, producing a net revaluation loss. Option A is correct. Option B reverses the result and incorrectly calls the difference a profit. Option C adds both amounts, ₹14,500+₹11,000=₹25,500, but revaluation result is found by comparing gains and losses, not by adding them. Option D merely repeats the gain total and ignores the larger loss total. This loss is transferred to the old partners’ capital or current accounts in their old ratio. Memory cue: debit or loss side higher means loss; subtract the smaller total from the larger total.

Correct answer: A. Old partners' current accounts

Under fixed capital method adjustments are made in current accounts. Loss is debited to old partners' current accounts.

Correct answer: A. Old partners' capital accounts

Under fluctuating capital method profit or loss goes directly to capital accounts. Loss reduces old partners' capital.

Correct answer: A. It distributes old profit to new partner

The direct answer is Option A: it is incorrect to say that Revaluation Account distributes old profit to the new partner. Revaluation Account is prepared when the partnership changes, especially on admission. It records increases and decreases in the values of assets and liabilities and then shows the resulting net revaluation profit or loss. That result belongs to the partners who were present before the change, because the change in old assets and liabilities relates to the old period. Option A is therefore incorrect: the new partner does not receive old revaluation profit. Option B is correct because asset changes, such as an increase in building value or decrease in stock value, are recorded there. Option C is correct because liability changes are also recorded; an increase in liability is a loss and a decrease is a gain. Option D is correct because the account is balanced to find net profit or loss. Do not confuse revaluation profit with future business profit, which may be shared by the new ratio.

Correct answer: A. At the reduced new value

After revaluation the asset appears at the new value in the final balance sheet. Write the adjusted value.

Correct answer: A. At the reduced new value

After revaluation the liability is shown at its new correct value. Use the revised liability amount in final balance sheet.