Asset Revaluation

The credit total exceeds the debit total by ₹3,08,500 − ₹2,94,000 = ₹14,500, so the Revaluation Account shows a profit. It is shared among the old partners in their old profit-sharing ratio.

Decrease in furniture value = ₹1,35,000 × 12/100 = ₹16,200. A reduction in the value of an asset represents a loss, so ₹16,200 is debited to the Revaluation Account. Exam tip: an increase in an asset is credited, while a decrease is debited.

Increase in the value of land = ₹925000 × 8/100 = ₹74000. An increase in an asset’s value is a revaluation gain, so ₹74000 is credited to the Revaluation Account. ₹851000 is the revised value of the land, not the gain. Exam tip: Credit the Revaluation Account with the increase in an asset’s value.

The previously unrecorded copyright is now recognized as an asset, so Copyright A/c is debited by ₹82,500. The corresponding credit goes to Revaluation A/c; any resulting revaluation profit is shared by the old partners in their old profit-sharing ratio.

Recording an unrecorded liability creates an additional obligation for the firm and is treated as a loss. Losses are recorded on the debit side of the Revaluation Account. In contrast, an increase in assets, a decrease in liabilities, and an unrecorded asset are gains and are recorded on the credit side. Exam tip: debit decreases in assets and increases in liabilities; credit increases in assets and decreases in liabilities.

The revaluation concerns assets and liabilities belonging to the period before the new partner joined. Therefore, any revaluation profit or loss is credited or debited to the old partners’ capital accounts in their old profit-sharing ratio, rather than being shared with the incoming partner.

A revaluation loss is distributed among the old partners in their old profit-sharing ratio. C’s fraction is 1/(4+4+1) = 1/9. Therefore, C’s share is ₹99,000 × 1/9 = ₹11,000, and this amount is debited to C’s Capital or Current Account because it is a loss. ₹44,000 represents the 4/9 share of either A or B. Exam tip: A partner’s account is debited for their share of a revaluation loss.

A decrease in the value of an asset represents a loss to the firm. In the Revaluation Account, losses are debited and gains are credited; therefore, ₹29,000 should be debited to the Revaluation Account. Option B gives the reverse treatment, which applies to an increase in an asset’s value. Exam tip: remember—decrease in asset, debit Revaluation Account; increase in asset, credit Revaluation Account.

An increase in a liability creates an additional financial burden for the firm, so it represents a revaluation loss. Losses are debited and gains are credited to the Revaluation Account; therefore, crediting ₹34,000 is incorrect and the amount should be debited. Exam tip: An increase in an asset or decrease in a liability is a gain, while a decrease in an asset or increase in a liability is a loss.

The decrease in the car’s value is ₹32,000 (₹2,40,000 − ₹2,08,000), which is a loss in the Revaluation Account. The ₹18,000 decrease in the bank loan reduces a liability and therefore represents a gain. Hence, net loss = ₹32,000 − ₹18,000 = ₹14,000. Exam tip: Treat a decrease in an asset and an increase in a liability as losses; a decrease in a liability is a gain.

The damaged goods create a loss of ₹36,000 in the Revaluation Account, while the increase in the remaining stock creates a gain of ₹21,500. Therefore, net loss = ₹36,000 − ₹21,500 = ₹14,500. Option C has the correct amount but the wrong nature of effect because the result is a loss, not a profit. Exam tip: treat a decrease in an asset as a loss and an increase as a gain, then calculate the difference.

The actual tax liability exceeds the existing provision by ₹7,500 (₹91,500 − ₹84,000). This increase in liability represents a loss to the firm, so ₹7,500 is debited to the Revaluation Account. Exam tip: An increase in a liability is debited to the Revaluation Account, whereas a decrease is credited.

The tax provision was ₹1,02,000, but the actual tax liability is only ₹94,300. Therefore, the liability decreases by ₹1,02,000 − ₹94,300 = ₹7,700. A decrease in liability is recorded as a gain in the Revaluation Account and is distributed among the partners’ capital accounts. Exam tip: A decrease in a liability creates a revaluation gain, while an increase creates a revaluation loss.

The asset account is adjusted to its revalued amount in a normal revaluation. Therefore, the revised balance sheet shows the new revised value, not the old book value.

A Memorandum Revaluation Account records the revaluation adjustments while keeping the assets’ and liabilities’ old book values unchanged in the books. Its two parts account for the revaluation result and its reversal.

The first part records revaluation as if it were a normal revaluation. Since the increase arose before the new partner’s admission, the gain is credited to the old partners in their old profit-sharing ratio.

The second part reverses the original revaluation adjustments. Its resulting profit or loss is shared by all partners, including the incoming partner, in the new profit-sharing ratio.

Reversing the ₹56,000 increase reduces the machinery value by ₹56,000 in the second part, creating a loss of ₹56,000. This loss is shared among all partners in the new profit-sharing ratio.

Reversing the ₹64,000 increase in patents creates a revaluation loss of ₹64,000. In the second stage of memorandum revaluation, this loss is distributed in the new ratio, 4:3:1. C’s share is 1/8, so C’s loss is ₹64,000 × 1/8 = ₹8,000. ₹24,000 represents B’s share of 3/8. Exam tip: A reversal of revaluation is shared by all partners in the new profit-sharing ratio.

A revaluation profit or loss is transferred to the capital accounts of the partners who existed before admission, in their old profit-sharing ratio. Therefore, the loss is distributed in the ratio 2:5:2. Out of ₹63,000, the three old partners will bear ₹14,000, ₹35,000 and ₹14,000 respectively. The new ratio 3:2:2:2 applies to profit sharing after admission, so option B is incorrect. Exam tip: Close the Revaluation Account in the old partners’ old ratio.

A normal revaluation adjusts assets and liabilities to reflect their position at the date of admission. The resulting gain or loss relates to the period before admission, so it is shared by the old partners in their old ratio, not by the new partner.

Decrease in equipment value = ₹395,000 − ₹358,000 = ₹37,000. A decrease in an asset is debited to the Revaluation Account. The discovery of an unrecorded liability is also treated as a loss and debited to the Revaluation Account by ₹11,500. Therefore, total debit = ₹37,000 + ₹11,500 = ₹48,500. Choosing ₹37,000 ignores the liability. Exam tip: when an unrecorded liability is discovered, debit Revaluation A/c and credit the Liability A/c.

The decrease in the vehicles’ value is ₹3,15,000 − ₹2,99,000 = ₹16,000, which is a loss in the Revaluation Account. Recording the unrecorded toolkit creates a gain of ₹12,750. Therefore, net loss = ₹16,000 − ₹12,750 = ₹3,250. Exam tip: a decrease in an asset is a loss, while discovery of an unrecorded asset is a gain.

The liability decreased from ₹96,000 to ₹88,800, resulting in a reduction of ₹7,200. A decrease in liability is treated as a revaluation gain, so ₹7,200 will be credited to the Revaluation Account. ₹88,800 is the settlement amount, not the gain. Exam tip: A decrease in liability creates a revaluation gain, while an increase creates a revaluation loss.

The direct answer is Option A: under the fixed capital method, revaluation loss is generally debited to the old partners’ current accounts. In the fixed capital method, the capital accounts are intended to remain unchanged except for specific permanent capital transactions. Routine items such as profit, loss, drawings, interest, and revaluation results are therefore recorded through current accounts. Revaluation loss is first determined in Revaluation Account and is then transferred to the old partners in their old profit-sharing ratio. Option A is correct. Option B is wrong because it says capital accounts are always debited; under fixed capital, current accounts are normally used, although special instructions or a different method can alter treatment. Option C is wrong because the new partner’s bank account is not the account for an old revaluation loss. Option D is wrong because Trading Account records gross trading results, not revaluation adjustments. The key distinction is fixed capital versus fluctuating capital: fixed capital uses current accounts for routine changes.