Asset Revaluation

Revaluation is done to show assets and liabilities at correct values on admission. In exams keep it separate from goodwill.

Increase in asset is a gain and revaluation account is credited. Record only the difference of ₹15000.

A reduction in the recorded value of an asset is treated as a revaluation loss. The loss is measured by comparing the original book value with the revised value, not by using either value separately. Here, the original equipment value is ₹90,000 and the revised value is ₹76,000. Therefore, the decrease is ₹90,000 − ₹76,000 = ₹14,000. This amount is debited to the Revaluation Account because it reduces the firm’s net worth. The revised value of ₹76,000 is only the new carrying amount, while ₹90,000 is the old amount; neither is itself the loss. Thus, option A is correct.

Creditors are liabilities of the firm. When a liability decreases, the firm’s obligation becomes smaller and its net position improves, so the decrease creates a revaluation gain. The amount of the decrease must be calculated as the old liability minus the new liability: ₹1,25,000 − ₹1,10,000 = ₹15,000. A gain is credited to the Revaluation Account. The entire new balance of ₹1,10,000 is not the gain, and the change cannot be ignored because it directly affects the firm’s net liabilities. Therefore, the correct effect is a credit of ₹15,000 to the Revaluation Account.

Bank overdraft is a liability. Its increase of ₹12,000 (₹72,000 − ₹60,000) represents a loss to the firm and is debited to the Revaluation Account. Hence, ₹12,000 debit is correct. Exam tip: an increase in a liability is debited to the Revaluation Account, while a decrease is credited.

Unrecorded furniture is an asset so the asset account is debited. Revaluation account is credited for the gain.

Recording an unrecorded liability causes a loss. So revaluation account is debited and tax payable account is credited.

Revaluation relates to the position before admission. So its profit goes to old partners in old ratio.

Revaluation loss belongs to the business before admission. It is distributed in old profit sharing ratio.

A revaluation profit is distributed among the old partners in their old profit-sharing ratio. B’s share is \(\frac{3}{7+3}=\frac{3}{10}\). Therefore, the amount credited to B’s Capital Account is \(₹40,000 \times \frac{3}{10}=₹12,000\). ₹28,000 is A’s share, so it is not the correct answer. Exam tip: On reconstitution, distribute revaluation profit or loss in the old profit-sharing ratio.

A revaluation loss is distributed among the old partners in their old profit-sharing ratio. A’s share is \(5/7\), so the debit to A’s Capital Account is \(₹49,000 \times 5/7 = ₹35,000\). ₹14,000 is B’s share, not A’s. Exam tip: Distribute revaluation profit or loss in the old profit-sharing ratio before recording the new partner’s admission.

The correct answer is A: Stock Account is debited by ₹8,000 and Revaluation Account is credited by ₹8,000. Stock is a business asset. Its book value rises from ₹85,000 to ₹93,000, so the increase is ₹93,000 − ₹85,000 = ₹8,000. An increase in an asset is recorded on the debit side. The corresponding revaluation gain is credited to Revaluation Account. Option A is therefore correct. Option B reverses both the account treatment and the nature of the change. Option C wrongly uses Capital Account and reverses the stock entry. Option D is wrong because a stated increase in an asset must be recorded during revaluation. Memory cue: asset increase means debit the asset; the resulting gain means credit Revaluation Account.

Patent is an asset and when value decreases the asset account is credited. Loss is debited to revaluation account.

Provision for doubtful debts = Debtors × provision rate = \(₹1,00,000 \times 4\% = ₹4,000\). Creating a new provision reduces the net value of debtors; hence, ₹4,000 is recorded as a loss on the debit side of the Revaluation Account. ₹96,000 is the net value of debtors after the provision, not the loss. Exam tip: Creation of a new provision or a decrease in an asset’s value is treated as a revaluation loss.

Provision has decreased by ₹3000. Decrease in provision is a gain so revaluation account is credited.

Net increase in provision = ₹9,000 − ₹3,500 = ₹5,500. An increase in provision represents a loss to the firm, so ₹5,500 is debited to the Revaluation Account. ₹9,000 is the total revised provision, not the amount of increase. Exam tip: For revaluation adjustments, calculate the difference between the new and existing provision.

A trademark is an intangible asset. When an asset exists but has not been recorded earlier, it must first be brought into the books by debiting the asset account. The unrecorded asset creates a gain for the firm because the firm has obtained a resource with a value of ₹28,000 that was absent from the accounting records. Gains arising from revaluation are credited to the Revaluation Account. The appropriate entry is therefore Trademark Account Dr. ₹28,000 and Revaluation Account Cr. ₹28,000. Cash is not involved, and neither a capital account nor a debit to Revaluation represents the correct treatment.

Electricity expense payable is a liability so its account is credited. Revaluation account is debited for the loss.

The ₹45,000 increase in land is a revaluation gain, whereas the ₹17,000 decrease in furniture is a revaluation loss. Therefore, the net result is ₹45,000 − ₹17,000 = a profit of ₹28,000. Choosing ₹62,000 would incorrectly add the increase and decrease. Exam tip: Offset revaluation gains against revaluation losses to determine the net result.

Decrease in debtors is a loss of ₹9000 and decrease in bills payable is a gain of ₹14000. Net profit is ₹5000.

An unrecorded asset is treated as a revaluation gain because it adds value to the firm’s recorded resources. An unrecorded liability is treated as a revaluation loss because it reveals an obligation that must be settled. To find the net result, compare the two amounts: liability loss ₹50,000 minus asset gain ₹35,000 equals ₹15,000. Since the liability is greater than the asset, the net effect is a loss of ₹15,000. In the Revaluation Account, the asset would be credited and the liability would be debited; after offsetting them, the remaining debit balance represents the net loss transferred to the partners.

A Revaluation Account shows a profit when its credit total exceeds its debit total. Profit = ₹92,000 − ₹68,000 = ₹24,000. Thus, a revaluation profit of ₹24,000 will be distributed among the old partners’ capital or current accounts. A loss of ₹24,000 would arise only if the debit total were higher. Exam tip: Credit greater than debit means revaluation profit; debit greater than credit means revaluation loss.

The debit total exceeds the credit total in the Revaluation Account. Difference = ₹54,000 − ₹31,000 = ₹23,000. Therefore, the account shows a loss of ₹23,000, which is transferred to the partners’ capital or current accounts in their profit-sharing ratio. Exam tip: an excess of credit total indicates profit, while an excess of debit total indicates loss.

Revaluation relates to assets and liabilities of the old firm. Therefore its profit or loss is given to old partners.

A warehouse is an asset owned or used by the firm. When its value is reduced during reconstitution, the firm’s recorded assets decrease and this reduction represents a loss. In the Revaluation Account, decreases in asset values are recorded on the debit side. The account is debited for the amount of the reduction, while the warehouse account is credited to reduce its book value. It would be incorrect to credit the Revaluation Account, because credits represent gains such as asset increases or liability decreases. Capital is not the nature of the adjustment, and omitting the entry would leave the revised asset value unrecorded.