Asset Revaluation

Increase in asset value is treated as a gain and credited to Revaluation Account. In exams first identify the direction of increase or decrease.

Decrease in asset value is a loss so Revaluation Account is debited and the asset is reduced. In exams subtract the new value from the old value.

A new provision reduces the realizable value of debtors so it is a loss. Calculate the provision by applying the percentage on debtors.

Reduction in provision decreases a deduction or liability and is a gain credited to Revaluation Account. Record only the difference.

The governing rule classifies a decrease in an asset as a loss and an increase in an asset as a gain. Stock decreases from ₹60,000 to ₹52,500, producing a loss of ₹7,500. Investments increase from ₹40,000 to ₹47,000, producing a gain of ₹7,000. Comparing the two effects gives ₹7,500 − ₹7,000 = ₹500, with the loss remaining larger. Therefore the net effect is a revaluation loss of ₹500, recorded through the debit balance of the Revaluation Account. Option B adds the two adjustments, option C reverses the remaining sign, and option D ignores the investment gain.

Discovery of an unrecorded asset creates a gain so Revaluation Account is credited. Such an asset is first brought into the books.

An unrecorded liability is a loss because the firm's obligation increases. Therefore Revaluation Account is debited.

Revaluation profit is distributed among old partners in the old ratio. A's share is ₹64000 × 5/8 = ₹40000.

Loss is debited to old partners in their old profit sharing ratio. Y's share is ₹36000 × 5/12 = ₹15000.

The Revaluation Account compares gains and losses arising from the revised values of assets and liabilities. A credit balance means that gains are greater than losses, while a debit balance means that losses are greater. Here, the credit side is ₹98,000 and the debit side is ₹74,000.

The excess of credit over debit is \\(₹98,000-₹74,000=₹24,000\\). Therefore the account shows a revaluation profit of ₹24,000, transferred to the old partners in their old profit-sharing ratio. Option A is correct. The two sides should not be added; the result is found from their difference and its nature from the side with the larger amount.

When the debit side is higher there is a revaluation loss. This loss is debited to old partners in the old ratio.

Decrease in furniture is 20 percent of ₹45000 which is ₹9000. Decrease in an asset is debited to Revaluation Account.

Increase in land is 12 percent of ₹300000 which is ₹36000. Increase in an asset is a gain and is credited.

Creditors are liabilities because they represent amounts owed by the firm. If ₹10,000 out of the creditors’ balance is no longer payable, the firm’s liability decreases by ₹10,000. A decrease in liability releases an obligation and improves net worth, so it is treated as a revaluation gain. The correct accounting effect is therefore a ₹10,000 credit to the Revaluation Account. The remaining creditors may be ₹65,000, but that balance is not the gain to be recorded. A debit would be appropriate for an increase in liability or a loss, not for cancellation of an obligation. The full ₹75,000 is also incorrect because only ₹10,000 has ceased to be payable.

A new claim is a liability so it is treated as a loss. Revaluation Account is debited while creating the claim.

The provision was excess by ₹12000 so it is a gain. Excess provision is credited to Revaluation Account.

The decrease in investments is 10% × ₹70,000 = ₹7,000. The additional provision on debtors of ₹3,000 is also treated as a loss in the Revaluation Account. Therefore, total revaluation loss = ₹7,000 + ₹3,000 = ₹10,000. Exam tip: Add decreases in assets and additional provisions while calculating revaluation loss.

The whole asset is being written off so the full book value is a loss. It will be debited to Revaluation Account.

Net profit on revaluation = increase in building value − decrease in stock value = ₹25,000 − ₹5,000 = ₹20,000. At the time of admission, the revaluation profit is transferred to the old partners in their old profit-sharing ratio. Therefore, B’s share = ₹20,000 × 2/5 = ₹8,000. ₹20,000 is the total revaluation profit, not B’s share. Exam tip: On admission, distribute revaluation profit or loss among the old partners in the old ratio.

A revaluation loss is debited to the partners’ Capital Accounts in the old profit-sharing ratio. A’s share is ₹25,000 × 4/5 = ₹20,000; therefore, A’s Capital Account is debited by ₹20,000. ₹5,000 is B’s share, and a loss causes a debit, not a credit. Exam tip: Credit revaluation profit and debit revaluation loss in the old ratio.

Revaluation corrects the position before admission so the gain belongs to old partners. In exams always remember the old ratio.

After revaluation assets are shown in the final balance sheet at new values. Only the difference goes to Revaluation Account.

An admitted claim is a receivable asset so it is a gain. Create the asset and credit Revaluation Account.

Advertisement expenditure shown as an asset or deferred expenditure has no future benefit when it is declared worthless. Therefore, its entire book balance must be written off at the time of admission. Writing off an asset or an expense balance creates a loss for the existing firm. In accounting terms, the loss is recorded by debiting the Revaluation Account with ₹30,000 and crediting Advertisement Expenditure Account. The resulting revaluation loss is then transferred to the old partners’ capital or current accounts in their old profit-sharing ratio. It is not charged to the incoming partner’s capital account, and a worthless item cannot be credited as a gain. Hence option A is correct.

Outstanding salary is an unrecorded liability. Recording it increases the firm’s liabilities by ₹9,000 and results in a loss on revaluation. Therefore, the Revaluation Account is debited by ₹9,000 and the Outstanding Salary Account is credited. The credit side would be used for an increase in an asset or a decrease in a liability, not for this adjustment. Exam tip: an unrecorded liability is debited to the Revaluation Account when it is brought into the books.