Asset Revaluation

Correct answer: D. Decrease in asset

The Revaluation Account records gains and losses arising from changes in the values of assets and liabilities. A decrease in an asset lowers the firm’s net assets and is therefore a loss. Losses are recorded on the debit side of Revaluation Account. An unrecorded asset brought into the books is generally a gain and is credited; a decrease in liability also reduces the firm’s obligations and is a gain, so it is credited. An increase in an asset increases net assets and is likewise credited. Thus only decrease in asset belongs on the debit side among the given choices. The amount would be the reduction in value, not the full asset balance. Hence option D is correct.

Correct answer: A. Unrecorded asset

The governing concept is the debit-credit treatment of gains and losses in Revaluation Account. An unrecorded asset discovered at admission is brought into the books because it belongs to the firm but was omitted earlier. Its recognition increases net assets and creates a gain, so Revaluation Account is credited. Therefore option A is correct. A decrease in an asset reduces net worth and is a loss, so it is debited. An increase in liability also creates a loss and is debited. Writing off bad debts reduces the value of debtors and is likewise a debit, generally after considering any existing provision. Thus the other three alternatives represent debit-side items, not a credit-side gain.