Asset Revaluation

Changes in asset and liability values on admission are recorded in revaluation account. In exams keep it separate from profit and loss adjustment.

Increase in asset is credited to revaluation account like a gain. Record only the increase of ₹40000.

Decrease in asset is debited to revaluation account like a loss. Take only the decrease of ₹30000.

Decrease in liability is a gain for the firm so it is credited to revaluation account. The difference is ₹8000.

Increase in liability is a loss so revaluation account is debited. Record only the increase of ₹10000.

Finding an unrecorded asset is a gain for the firm. So asset is debited and revaluation account is credited.

Recording an unrecorded liability causes a loss to the firm. So revaluation account is debited and liability account is credited.

Revaluation relates to the firm before admission. Therefore its profit is distributed among old partners in old ratio.

Revaluation loss belongs to old partners because the change relates to the period before admission. Debit it in old ratio.

Revaluation profit is distributed among the old partners in their old profit-sharing ratio. A’s share is \(3/5\), so A receives \(₹50,000 \times 3/5 = ₹30,000\). ₹20,000 is B’s share. Exam tip: On admission of a partner, distribute revaluation profit or loss among the old partners in their old ratio.

A revaluation loss is distributed among the old partners in their old profit-sharing ratio. B’s share is 1/5, so B’s loss = ₹25,000 × 1/5 = ₹5,000. Therefore, B’s Capital Account is debited by ₹5,000. Exam tip: a revaluation loss is debited to partners’ capital accounts, while a revaluation profit is credited.

When an asset increases the asset account is debited. Revaluation account will be credited by ₹12000.

When an asset decreases the related asset account is credited. Revaluation account will be debited by ₹9000.

Provision will be (80000 \times 5% = ₹4000). Creating new provision is a loss so it is debited to revaluation account.

Provision has increased by ₹3000. Increase in provision is a loss so it is debited to revaluation account.

The governing concept is that a reduction in an existing provision creates a gain during revaluation because the liability or charge against the firm becomes smaller. The provision falls from ₹10,000 to ₹7,000, so the reduction is ₹10,000 − ₹7,000 = ₹3,000. This benefit is credited to the Revaluation Account. Option A is therefore correct. Option B would apply if the required provision increased by ₹3,000. Option C incorrectly treats the new total provision as the adjustment, and option D is wrong because the difference must be recorded. The amount, not the remaining provision, is the relevant adjustment.

Unrecorded investment is an asset so investment account is debited. Revaluation account is credited because it is a gain.

Unrecorded outstanding salary is a liability and recording it causes a loss. Therefore revaluation account is debited.

The land's value rises by ₹60,000 (₹3,60,000 − ₹3,00,000), while the machinery's value falls by ₹30,000 (₹2,00,000 − ₹1,70,000). The increase is a gain and the decrease is a loss, so the net revaluation result is a profit of ₹60,000 − ₹30,000 = ₹30,000.

Decrease in stock is a loss of ₹15000 and decrease in creditors is a gain of ₹10000. Net result is loss of ₹5000.

The governing concept is that an unrecorded asset is credited to the Revaluation Account because it creates a gain, whereas an unrecorded liability is debited because it creates a loss. The net result is found by offsetting the two effects: gain ₹22,000 minus loss ₹17,000 = net profit ₹5,000. Therefore, option A is correct. Option B reverses the direction of the two adjustments. Option C adds the amounts instead of offsetting the gain against the loss, and option D ignores items that must be recorded. The net profit will be transferred to the old partners’ capital accounts in their old ratio.

When credit side is higher there is revaluation profit. It is credited to old partners in old ratio.

When debit side is higher there is revaluation loss. It is debited to old partners' capital in old ratio.

Revaluation corrects the position of the old business. Therefore its profit or loss belongs to old partners.

The governing concept is that assets must be shown at their revised values when a new partner is admitted, and any fall in an asset’s value is treated as a revaluation loss. Vehicles are assets. Therefore, if their recorded value is reduced, the reduction is debited to the Revaluation Account and is later borne by the old partners in their old profit-sharing ratio. Option A is correct. Option B would apply to an increase in the vehicle value. Option C is not the name of the revaluation result, although capital accounts may eventually be affected. Option D concerns the value of business reputation and is a separate goodwill matter.