Asset Revaluation

Reversing the ₹40,000 increase in the memorandum revaluation account creates a loss of ₹40,000. This loss is shared in the new ratio of 2:1:1. C’s share is 1/4, so C’s share = ₹40,000 × 1/4 = ₹10,000. The old ratio is not used because the reverse loss is distributed in the new ratio. Exam tip: In memorandum revaluation, the original revaluation effect is shared in the old ratio, while the reverse effect is shared in the new ratio.

Revaluation profit arises from the business before the new partner is admitted. For that reason, it belongs only to the old partners and must be distributed in their old profit-sharing ratio, not in the new ratio. The old ratio of A and B is 7:5, so the total number of old-ratio parts is 12. Partner A owns 7 of those 12 parts.

A’s share is calculated as ₹60,000 × 7/12 = ₹35,000. Therefore, option A is correct. The new ratio 5:4:3 is used for future profits after admission, but it does not change the entitlement to a revaluation profit earned before admission. Partner A consequently receives ₹35,000 from the revaluation profit.

Revaluation loss is charged to old partners in old ratio. New ratio is used for future profits.

Revaluation recognises value change of old resources. Therefore the profit belongs to old partners.

The decrease in the equipment’s value is ₹125000 − ₹110000 = ₹15000, which is debited to the Revaluation Account. The previously incurred but unrecorded repair expense of ₹6000 is also debited to this account. Therefore, total debit = ₹15000 + ₹6000 = ₹21000. Exam tip: a fall in an asset’s value and an unrecorded expense already incurred are both debits to the Revaluation Account.

The decrease in the vehicle’s value is ₹2,10,000 − ₹1,92,000 = ₹18,000, which is a loss in the Revaluation Account. The discovery of an unrecorded spare part is a gain of ₹9,500. Therefore, net loss = ₹18,000 − ₹9,500 = ₹8,500. ₹27,500 would result from incorrectly adding the loss and gain. Exam tip: treat a decrease in an asset as a loss and an unrecorded asset as a gain, then calculate their net effect.

The liability decreased from ₹75,000 to ₹67,500, resulting in a saving of ₹7,500 for the firm. This is a gain and ₹7,500 is credited to the Revaluation Account. The ₹67,500 is the final settlement paid to the creditor, not the amount of gain. Exam tip: A reduction in a liability is treated as a gain and credited to the Revaluation Account.

In fixed capital method capital remains fixed and adjustments go to current accounts. Profit is credited to old partners current accounts.

Under fluctuating capital method adjustments are made directly in capital accounts. Loss is debited to old partners.

In normal revaluation asset account is changed to the new value. Final balance sheet shows the revised value.

The role of Revaluation Account is to find result of old value changes. Cash or goodwill is not its only purpose.

The direct answer is option B, ₹440 debit. A provision for doubtful debts is adjusted to the required new amount. New provision = 6% of ₹124000 = ₹124000 × 6/100 = ₹7440. The old provision is ₹7000, so the provision must increase by ₹7440 − ₹7000 = ₹440. An increase in provision is treated as an expense or loss and is debited to the Revaluation Account. Therefore the effect is ₹440 debit. Option A, ₹440 credit, reverses the effect; credit would be appropriate for a decrease in provision. Option B is correct. Option C, ₹7440 debit, records the entire new provision and ignores the existing ₹7000 provision. Option D, ₹7000 credit, records the old amount in the wrong direction. The key exam rule is to record only the adjustment amount, not the full revised provision.

The increase in assets is ₹1,02,000 − ₹90,000 = ₹12,000, which is a gain in the Revaluation Account. The increase in liabilities is ₹51,000 − ₹45,000 = ₹6,000, which is a loss because the firm’s obligation has increased. Therefore, the net revaluation profit is ₹12,000 − ₹6,000 = ₹6,000. Exam tip: treat an increase in assets as a gain and an increase in liabilities as a loss, then find the difference.

The correct answer is A: no profit or loss. First calculate the liability decrease: ₹84,000 − ₹78,000 = ₹6,000. A decrease in liability is a revaluation gain of ₹6,000. Next calculate the asset decrease: ₹58,000 − ₹52,000 = ₹6,000. A decrease in asset is a revaluation loss of ₹6,000. The gain and loss cancel: ₹6,000 − ₹6,000 = zero. Therefore there is no net revaluation profit or loss. Option A is correct. Option B counts only the liability gain and ignores the asset loss. Option C counts only the asset loss and ignores the liability gain. Option D adds both amounts, although one is a gain and the other is a loss. Memory cue: classify each change first, then offset gains against losses.

Recognising the previously omitted liability increases the liabilities by ₹26,000. This reduces the net assets of the business and results in a loss on revaluation; therefore, the Revaluation Account is debited by ₹26,000. A credit would be incorrect because it represents a revaluation gain or an increase in assets. Exam tip: an omitted liability recognised during reconstitution is generally debited to the Revaluation Account.

Net revaluation profit = increase in assets − increase in liabilities = ₹45,500 − ₹15,500 = ₹30,000. B’s share is 6/(9+6) = 6/15, so B’s share = ₹30,000 × 6/15 = ₹12,000. Therefore, option A is correct. Exam tip: An increase in liabilities reduces the revaluation profit, so subtract it from the asset increase.

The building’s value increases by ₹8,18,000 − ₹7,50,000 = ₹68,000. This increase is a gain, so ₹68,000 is credited to the Revaluation Account.

Decrease in plant value = ₹3,60,000 − ₹3,18,500 = ₹41,500. A reduction in the value of an asset is a revaluation loss, so ₹41,500 is debited to the Revaluation Account. Crediting ₹41,500 would be incorrect because a credit represents a revaluation gain arising from an increase in asset value. Exam tip: record the decrease in the asset on the credit side of the Revaluation Account, while the resulting loss is debited to that account.

The creditors’ liability decreased from ₹2,25,000 to ₹2,10,500, resulting in a reduction of ₹14,500. A decrease in liability is a gain for the firm, so ₹14,500 is credited to the Revaluation Account. Option A is incorrect because the reduction creates a gain, not a loss; ₹2,10,500 is the settlement amount, not the gain. Exam tip: When a liability is settled for less than its book value, the difference is treated as a gain on revaluation.

Recording the previously unrecorded liability creates a loss for the old partners. Debit the Revaluation Account and credit Electricity Payable to recognise the liability.

The reduction in provision increases the net value of debtors by ₹6,200, creating a revaluation gain. Therefore, ₹6,200 is credited to the Revaluation Account. ₹19,800 is the revised provision, not the gain. Exam tip: an increase in an asset or a decrease in a liability is credited to the Revaluation Account.

The decrease in stock is ₹28,500 (₹2,80,000 − ₹2,51,500), which is a revaluation loss. The increase in investments is ₹22,000 (₹1,62,000 − ₹1,40,000), which is a revaluation gain. Therefore, the net result is ₹28,500 loss − ₹22,000 gain = ₹6,500 loss. ₹50,500 results from adding the two amounts without considering their opposite effects. In the exam, calculate each gain or loss separately before adjusting them.

Revaluation profit is distributed among the old partners in their old profit-sharing ratio. The total of the ratio is 5 + 3 + 2 = 10, so C’s share is 2/10. Therefore, the amount credited to C is ₹1,20,000 × 2/10 = ₹24,000. ₹36,000 is B’s share, based on 3/10. Exam tip: For revaluation profit or loss, use the old partners’ old profit-sharing ratio, not the new ratio after admission.

A revaluation loss is debited to the capital accounts of the old partners in their old profit-sharing ratio. B’s share is \(\frac{7}{11+7}=\frac{7}{18}\). Therefore, the debit to B’s Capital Account is ₹72,000 × \(\frac{7}{18}\) = ₹28,000. ₹44,000 represents A’s share, not B’s. Exam tip: distribute revaluation profit or loss among the old partners in their old ratio, not in the new ratio.

Recognising the unrecorded court-case liability creates a loss for the old partners. The liability is credited, and the corresponding ₹33,600 is debited to the Revaluation Account.