Asset Revaluation

Correct answer: A. Old partners’ capital accounts

Revaluation profit belongs to the partners who were in the firm before admission. Under the fluctuating capital method, it is credited directly to their capital accounts in their old profit-sharing ratio.

Correct answer: B. New, reduced value

The revalued liability is shown at its revised amount in the final balance sheet. Since the revised amount is lower, the new, reduced value is shown.

Correct answer: B. It determines the profit or loss from revaluing assets and liabilities

The Revaluation Account records the effects of changes in the values of assets and liabilities and is used to determine the resulting profit or loss. It does not show a partner’s capital.

Correct answer: A. ₹8,500 profit

The increase in the asset is ₹1,74,500 − ₹1,58,000 = ₹16,500, which is a gain in the Revaluation Account. The increase in the liability is ₹96,000 − ₹88,000 = ₹8,000, which is a loss. Therefore, the net revaluation profit is ₹16,500 − ₹8,000 = ₹8,500. ₹24,500 is incorrect because the liability increase must be deducted, not added. Exam tip: an increase in an asset is a gain, whereas an increase in a liability is a loss.

Correct answer: A. No profit or loss

The liability decreases by ₹7,500 (₹132,000 − ₹124,500), which gives a revaluation gain. The asset also decreases by ₹7,500 (₹97,000 − ₹89,500), which gives an equal loss. The two offset, so the net result is no profit or loss.

Correct answer: B. ₹44,400 debit

Recognising a liability that was previously omitted increases the liabilities of the business and represents a loss. This loss is debited to the Revaluation Account, so ₹44,400 will be debited. The liability account will be credited by the same amount, but that credit is not made in the Revaluation Account. Exam tip: recognition of an omitted liability means a debit to the Revaluation Account.

Correct answer: A. ₹20,000 profit

The increase in assets creates a gain of ₹78,000, while the increase in liabilities creates a loss of ₹26,000. Therefore, net revaluation profit = ₹78,000 − ₹26,000 = ₹52,000. B’s share is 5/13, so B’s profit = ₹52,000 × 5/13 = ₹20,000. Option D is the total revaluation profit, not B’s individual share. Exam tip: Revaluation profit or loss is distributed among old partners in their old profit-sharing ratio.