Asset Revaluation

Hidden liability is a loss so it is debited to Revaluation Account. Customer claim is credited as liability.

Profit occurs when credit effects exceed debit effects. Asset increase and liability decrease are credit effects.

Direct answer: Revaluation Account is debited by ₹21,000, so option A is correct. Advertisement expenditure shown as an asset is a deferred or fictitious asset in this context. If it must be completely written off on admission, its book value is removed from the balance sheet. Removing an asset reduces the firm’s net assets and creates a revaluation loss. Therefore Revaluation Account is debited ₹21,000, while the advertisement expenditure asset is credited or written off. Option B is wrong because a credit would represent a gain, whereas writing off an asset causes a loss. Option C is wrong because the advertisement account is not debited when it is being eliminated; it is credited. Option D is wrong because the adjustment is made through Revaluation Account, not directly against the new partner. Memory cue: asset written off means debit revaluation.

Profit and Loss Account balance is accumulated profit or loss not asset revaluation. It is distributed directly among old partners in old ratio.

A decrease in the value of a liability reduces the firm’s obligation and creates a revaluation gain. Hence, it is recorded on the credit side of the Revaluation Account. An unrecorded liability, a decrease in an asset’s value, and the writing off of bad debts create losses or expenses and are therefore debited. Exam tip: Credit increases in assets and decreases in liabilities; debit decreases in assets and increases in liabilities.

A revaluation profit is distributed only among the old partners in their old profit-sharing ratio. The total of the ratio is 5+4+3=12, and the third partner’s share is 3/12. Therefore, the amount credited is ₹42,000 × 3/12 = ₹10,500. Option B is the second partner’s 4/12 share, not the third partner’s share. Exam tip: On admission of a partner, revaluation profit or loss is transferred to the old partners in their old ratio.

The Revaluation Account records the amount of provision actually recognised by the firm. In this case, the firm accepts a provision of ₹18,000 against the possible liability of ₹30,000. Since creating this provision represents a loss or liability for the firm, the Revaluation Account is debited by ₹18,000. Debiting ₹30,000 would be incorrect because no provision has been recognised for the remaining ₹12,000. Exam tip: Record the amount actually recognised and adjusted, not the entire estimated or possible amount.

Computer decrease is ₹8000 loss and patent increase is ₹11000 gain. B share in net profit ₹3000 is 2/5 which is ₹1200.

When there is no change Revaluation Account shows no profit or loss. Only actual value changes are recorded.

Decrease in furniture value = ₹64,000 × 15/100 = ₹9,600. A decrease in the value of an asset is a loss on revaluation, so ₹9,600 is debited to the Revaluation Account. ₹54,400 is the revised value of the furniture, not the debit amount. Exam tip: A decrease in an asset’s value is always recorded on the debit side of the Revaluation Account.

Increase in the value of land = ₹2,50,000 × 12/100 = ₹30,000. An increase in an asset creates a revaluation gain, so the increase is credited to the Revaluation Account. ₹2,80,000 is the revised value of the land, not the amount credited. Exam tip: Record only the change in value—not the revised asset value—in the Revaluation Account.

An increase in the value of an asset is a revaluation gain for the firm. The correct entry is: Asset Account Dr. ₹17,000 and Revaluation Account Cr. ₹17,000. The resulting revaluation profit is ultimately distributed among the old partners’ Capital or Current Accounts in their profit-sharing ratio; it is not credited directly to the new partner. Exam tip: An asset increase is credited to the Revaluation Account, whereas an asset decrease is debited to it.

A revaluation loss is distributed among the old partners in their old profit-sharing ratio. The second partner’s share is \(3/10\), so the debit is ₹50,000 × \(3/10\) = ₹15,000. Therefore, option B is correct. Exam tip: A revaluation loss is debited to the partners’ capital accounts, whereas a revaluation profit is credited to them.

Under fixed capital method such adjustments are often made through current accounts. In exams identify capital and current account treatment.

The direct answer is Option A: the ₹20,000 revaluation profit is distributed in the old ratio 4:1. Revaluation concerns the values of assets and liabilities that existed before the new partner entered. Therefore, the profit belongs only to A and B, the old partners. The new ratio 3:2:1 is used for profits and losses arising after admission, not for the old revaluation result. Step by step, the revaluation profit is ₹20,000, and the old ratio is 4:1. Total parts are 5. A receives ₹20,000 × 4/5 = ₹16,000, and B receives ₹20,000 × 1/5 = ₹4,000. Option A is correct. Option B is wrong because 3:2:1 includes the new partner and applies after admission. Option C is wrong because nothing in the question says the old partners share equally. Option D is wrong because sacrificing ratio is used mainly to calculate compensation for the sacrifice made by old partners in favour of the incoming partner, not to distribute revaluation profit. Memory cue: old item, old ratio; future item, new ratio.

Building increase is gain so ₹45000 appears on credit side. Provision increase is loss and goes to debit side.

Decrease in asset value is a loss so Revaluation Account is debited. In exams record only the difference.

The governing concept is that an increase in the carrying value of an asset represents a revaluation gain. Land rises from its old book value of ₹4,80,000 to its revised value of ₹5,25,000. The increase is calculated as ₹5,25,000 − ₹4,80,000 = ₹45,000. A gain is credited to Revaluation Account, while Land Account is debited for the increase. Thus ₹45,000 appears on the credit side of Revaluation Account, making option B correct. The full revised value of ₹5,25,000 is not credited because only the change in value is transferred through revaluation. Options A and D show the wrong nature or amount, and option C confuses the closing value with the gain.

The governing principle is that a reduction in an existing liability creates a gain for the partnership. Creditors originally stood at ₹1,20,000, but the amount finally payable is only ₹1,08,000. The liability has therefore decreased by ₹1,20,000 − ₹1,08,000 = ₹12,000. This saving benefits the firm, so Revaluation Account is credited by ₹12,000, while Creditors Account is debited to reduce the liability. Option B is correct. Option A reverses the nature of the adjustment, option C treats the remaining liability as the gain instead of the reduction, and option D ignores a definite change in the firm’s obligation.

Creation of an unrecorded liability is a loss so Revaluation Account is debited. The liability account is credited.

The governing concept is that an unrecorded asset discovered during admission must be recognized at its agreed value, and its recognition produces a revaluation gain. The investment is an asset, so Investment Account is debited by ₹39,000 to bring it into the books. Since the firm has gained an asset that was previously omitted, Revaluation Account is credited by ₹39,000. The correct journal effect is therefore Investment Account Dr ₹39,000; To Revaluation Account ₹39,000. Option A is correct. Option B reverses both the asset and gain treatment, while options C and D incorrectly transfer the amount to partners’ capital accounts without a basis in the facts.

The governing concept is that bad debts and a newly created provision reduce the realizable value of debtors, so both are charged as revaluation losses. First, bad debts of ₹6,000 are written off from debtors of ₹96,000, leaving a balance of ₹90,000. The required provision is 5% of ₹90,000, calculated as ₹90,000 × 5/100 = ₹4,500. The total loss is therefore ₹6,000 + ₹4,500 = ₹10,500. Option B is correct. Option A includes only the provision, option D includes only the bad debts, and option C incorrectly calculates 5% on the original amount or otherwise combines the figures.

A reduction in the provision decreases the liability and results in a gain of ₹4,500. Therefore, ₹4,500 is recorded on the credit side of the Revaluation Account: ₹14,000 − ₹9,500 = ₹4,500. ₹9,500 is the new balance, not the adjustment amount. Exam tip: When a provision related to an asset decreases, credit the difference to the Revaluation Account.

The decrease in stock is ₹1,10,000 − ₹92,800 = ₹17,200, which is a revaluation loss. The increase in patents is ₹70,000 − ₹55,000 = ₹15,000, which is a revaluation gain. Therefore, the net result is ₹15,000 − ₹17,200 = ₹2,200 loss. ₹32,200 would result from adding the two amounts instead of offsetting the gain against the loss. Exam tip: Treat a decrease in an asset as a loss and an increase as a gain, then set them off against each other.

Revaluation profit is distributed among the old partners in their old profit-sharing ratio. B’s share is \(\frac{3}{2+3+5}=\frac{3}{10}\). Therefore, the amount credited to B’s capital account is ₹80,000 × \(\frac{3}{10}\) = ₹24,000. ₹40,000 represents the 5/10 share belonging to C, not B. Exam tip: Revaluation profit arising at the time of admission is transferred to old partners in their old ratio.