Asset Revaluation

The correct answer is A: Revaluation gain. A lender is a liability because the firm owes money to the lender. The liability falls from its earlier amount by ₹25,000, meaning the business now owes ₹25,000 less. A decrease in a liability is a gain for the business, so Revaluation Account is credited by ₹25,000. Option A correctly names this gain. Option B is wrong because a liability decrease is not a loss. Option C is wrong because no asset is being reduced; the item concerned is a liability. Option D is wrong because goodwill is an intangible asset or business reputation, not the benefit obtained by reducing a lender’s claim. Exam cue: asset increase and liability decrease generally create revaluation gains; asset decrease and liability increase create revaluation losses.

Investment is an asset and decrease in value is a loss. Loss of ₹5000 is debited to revaluation account.

Bad debts reduce the realisable value of debtors by ₹6,500, so the Debtors Account is credited. This creates a loss for the business, which is debited to the Revaluation Account: Revaluation Account Dr. ₹6,500; To Debtors Account ₹6,500. Option B is incorrect because it represents a gain, whereas bad debts are a loss. Exam tip: A decrease in the value of an asset is generally debited to the Revaluation Account.

Prepaid rent is an asset. When an unrecorded asset is brought into the books, Prepaid Rent Account is debited by ₹4,500 and Revaluation Account is credited by ₹4,500, thereby increasing the revaluation profit. Cash is not credited because no fresh cash payment is involved in this adjustment. Exam tip: Recording an unrecorded asset credits the Revaluation Account, whereas recording an unrecorded liability debits it.

Interest receivable is an asset. When an unrecorded asset is recorded revaluation account is credited.

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

The correct answer is A: decrease in liability. Revaluation Account records the effect of changes in the values of assets and liabilities at the time of reconstitution. When a liability decreases, the firm’s obligation becomes smaller. This is a gain, and all gains are recorded on the credit side of Revaluation Account. Therefore, option A is correct. Option B, decrease in asset, lowers the firm’s asset value and is a loss, so it is recorded on the debit side. Option C, increase in liability, makes the firm’s obligation larger and is a loss, so it is debited. Option D, bad debts, represent the amount that may not be recovered from debtors; this reduces the value of assets and is a loss, so it is debited. The classification can be checked logically: anything that increases net value is a credit, while anything that reduces net value is a debit. A decrease in liability increases net value. Exam cue: in revaluation, liability down means gain and credit; liability up means loss and debit.

A decrease in the value of an asset creates a loss on revaluation, so it is recorded on the debit side of the Revaluation Account. In contrast, an increase in an asset and a decrease in a liability are gains and are recorded on the credit side. An unrecorded asset is also generally credited. Exam tip: asset decreases and liability increases are debited; asset increases and liability decreases are credited.

Net revaluation profit = ₹88,000 − ₹34,000 = ₹54,000. This profit is distributed in the old profit-sharing ratio of 4:5. Therefore, A’s share = ₹54,000 × 4/9 = ₹24,000. ₹54,000 is the total revaluation profit, not A’s individual share. Exam tip: First calculate the net revaluation profit or loss, and then distribute it in the old ratio.

Net revaluation loss = ₹72,000 − ₹27,000 = ₹45,000. This loss is distributed in the old profit-sharing ratio of 1:2. Therefore, B’s share = ₹45,000 × 2/3 = ₹30,000, which is debited to B’s Capital or Current Account. Exam tip: For a revaluation loss, subtract the credit total from the debit total and then distribute the loss in the old ratio.

Only increase or decrease is recorded in revaluation account. Writing full value is a common exam mistake.

Increase in asset is a gain and should be credited. Debiting it makes revaluation result wrong.

An unrecorded liability is an obligation that was absent from the books but is discovered during reconstitution. Once it is recognized, the firm suffers a loss because a liability has to be accounted for without a corresponding previously recorded asset or benefit. If the liability is paid immediately in cash, cash also leaves the business.

Therefore, two effects occur together: the liability produces a revaluation loss of ₹20,000, and payment produces a decrease in cash of ₹20,000. The question asks for the combined nature of the effects, not a single net balance-sheet change. It is not a revaluation gain, and goodwill is not automatically increased merely because a liability is paid. Hence option A correctly states “revaluation loss and decrease in cash.”

An unrecorded asset is first brought into the books at the value assigned to it. If it is later sold for a higher amount, the difference between the sale proceeds and the recorded value is an additional gain. Here, the asset was recorded at ₹18,000 and sold for ₹20,000. Therefore, the additional gain is ₹20,000 − ₹18,000 = ₹2,000, so option A is correct.

The recorded value acts as the asset’s book value for this calculation. The sale brings in ₹20,000, but ₹18,000 was already recognised when the asset was recorded. Only the excess amount, ₹2,000, is a new gain on sale. The answers ₹18,000 and ₹20,000 confuse the book value or sale value with the gain, while zero would ignore the increase in value.

Value change shows gain or loss of the old business. Therefore it is adjusted in old partners' capital.

In new balance sheet the asset appears at revised value. The difference of ₹60000 goes to revaluation account.

After revaluation machinery is shown at reduced new value. The decrease of ₹30000 is revaluation loss.

A liability appears at revised amount after revaluation. Increase of ₹6000 is revaluation loss.

Accumulated profit is distributed separately among old partners. Revaluation account is for changes in assets and liabilities.

Revaluation account is only for changes in asset and liability values. New partner's capital is recorded separately in capital account.

A revaluation profit is distributed among the old partners in their old profit-sharing ratio. A’s share is 6/(6+4) = 6/10. Therefore, the amount credited to A’s Capital Account is ₹65,000 × 6/10 = ₹39,000. ₹26,000 is B’s share, so it is not the correct answer. Exam tip: Distribute revaluation profit or loss in the old ratio before accounting for the incoming partner.

A revaluation loss is distributed among partners in their old profit-sharing ratio. B’s share is 7/10, so the amount debited to B’s capital account is \(₹80{,}000 \times \frac{7}{10} = ₹56{,}000\). ₹24,000 is A’s share, not B’s. Exam tip: A partner’s share of revaluation loss = total loss × that partner’s ratio.

The increase in the vehicle’s value gives a gain of ₹12,000, while the decrease in the computer’s value gives a loss of ₹8,000. Therefore, the net revaluation profit is ₹12,000 − ₹8,000 = ₹4,000. This profit is recorded in the Revaluation Account and distributed among the partners in their old profit-sharing ratio. Exam tip: Treat an increase in an asset’s value as a gain and a decrease as a loss, then find the difference.

When closing profit revaluation account is debited and old partners' capital accounts are credited. The profit is shared in old ratio.

When closing loss old partners' capital accounts are debited and revaluation account is credited. Loss is shared in old ratio.