Asset Revaluation

A lender’s balance represents an amount payable by the firm, so it is a liability rather than an asset. The governing revaluation rule states that an increase in a liability increases the firm’s obligations and reduces its net worth; it is therefore treated as a revaluation loss. The additional ₹14,000 would be recorded on the debit side of the Revaluation Account, although the question asks for the type of effect. A liability decrease would create a gain, but that is the opposite situation. The change is not an asset increase because no asset has appreciated, and it is not goodwill because goodwill is an intangible business value, not an increase in a lender’s payable balance.

Investment is an asset and increase in value is a gain. Difference of ₹13000 is credited to revaluation account.

Bad debts reduce the value of debtors and represent a loss to the firm. Therefore, the entry is: Revaluation Account Dr. ₹8,200 To Debtors Account ₹8,200. Hence, the Revaluation Account is debited by ₹8,200. Option B is incorrect because a credit in the Revaluation Account is made for an increase in the value of an asset. Exam tip: A decrease in an asset or any loss is debited to the Revaluation Account.

Prepaid advertisement is an asset. When an unrecorded asset is brought into the books, the asset account is debited by ₹7,200 and the Revaluation Account is credited. This increases the revaluation profit. Therefore, option A is correct; option B represents the opposite treatment. Exam tip: an unrecorded asset is credited to the Revaluation Account, whereas an unrecorded liability is debited to it.

Rent receivable is an asset so its account is debited. Revaluation account is credited for the gain.

Advertisement expense payable is a liability. When a liability is recorded its account is credited and revaluation account is debited.

Net profit on revaluation = ₹132000 − ₹84000 = ₹48000. This profit is distributed among the old partners in their old profit-sharing ratio of 5:7. Therefore, A’s share = ₹48000 × 5/12 = ₹20000. ₹48000 is the total revaluation profit, not A’s share. Exam tip: A higher credit total indicates revaluation profit, while a higher debit total indicates revaluation loss.

Since the debit total exceeds the credit total, there is a net revaluation loss of ₹91,000 − ₹56,000 = ₹35,000. This loss is distributed in the old profit-sharing ratio of 4:3. Therefore, B’s share is ₹35,000 × 3/7 = ₹15,000, which is debited to B’s Capital Account. ₹35,000 is the total loss, not B’s individual share. Exam tip: Distribute revaluation profit or loss in the old profit-sharing ratio.

Revaluation result comes only from increase or decrease. Writing the full new value will make the result wrong.

The direct answer is Option A: if an increase in liability is wrongly credited, profit will appear higher or loss will appear lower. A liability is an amount owed by the firm. If a liability increases, the firm has an additional burden, so the change is a loss and should be debited to Revaluation Account. Suppose a liability rises by ₹8,000. Correct treatment is a debit of ₹8,000. If it is wrongly credited, the account receives the opposite effect: a loss is treated as a gain, so reported profit is overstated, or an actual loss is reduced. Option A is correct. Option B is wrong because the loss would not be correct; it would be misstated. Option C is wrong because the error definitely changes the revaluation result. Option D is wrong because recording a liability does not increase an asset. The mistake affects profit or loss, not the asset balance. Exam cue: increase in asset is credit, but increase in liability is debit.

Recognising the unrecorded liability creates a loss of ₹16,000 in the Revaluation Account because a previously omitted liability is now acknowledged. Paying it in cash reduces the cash balance by ₹16,000. Therefore, the combined effect is a revaluation loss and a decrease in cash. Exam tip: recognition of the liability affects revaluation, while its settlement affects cash.

Once an unrecorded asset is brought into the books, its recorded value becomes the amount against which the eventual sale proceeds are compared. Here the asset has a book value of ₹25,000 but realizes only ₹23,000 on sale. The shortfall is calculated as ₹25,000 − ₹23,000 = ₹2,000, so the transaction produces an additional loss of ₹2,000. In a Revaluation Account context, this loss is a debit effect. The answer is not a ₹2,000 gain because the sale proceeds are lower than the recorded amount. ₹25,000 is the book value, not the result, and there is an effect because the difference must be recognized.

Revaluation corrects gain or loss of the period of old partners. Therefore the new partner does not directly share it.

In the new balance sheet the asset is shown at revised value. The difference ₹70000 goes to revaluation account.

After revaluation vehicles appear at the new reduced value. The decrease of ₹25000 is revaluation loss.

In the new balance sheet, creditors will be shown at the revised liability of ₹88,000. The reduction of ₹8,000 is treated as a gain in the Revaluation Account; it is not the final amount of creditors. Exam tip: liabilities are shown in the balance sheet at their adjusted or revised values.

Old profit and loss balance is accumulated profit or loss and is distributed separately among old partners. Revaluation account is for value changes.

Revaluation account is for revaluing assets and liabilities. New partner's capital is recorded separately in capital account.

A revaluation profit is distributed in the old profit-sharing ratio. B’s share is \(2/(8+2) = 2/10\), so the amount credited to B’s capital account is \(75000 \times \frac{2}{10} = ₹15000\). Option B, ₹60,000, is A’s share of the profit. Exam tip: Always distribute revaluation profit using the partners’ old ratio.

The total ratio is 7 + 5 = 12, so A’s share of the loss is \(7/12\). Therefore, the amount debited to A’s Capital Account is \(₹96,000 \times 7/12 = ₹56,000\). ₹40,000 is B’s share of the loss, while ₹48,000 would result from an equal distribution. Exam tip: Revaluation profit or loss is transferred to the old partners’ Capital Accounts in their old profit-sharing ratio.

The increase in the patent’s value is ₹1,02,000 − ₹90,000 = ₹12,000, which is a gain. The decrease in the computer’s value is ₹76,000 − ₹68,000 = ₹8,000, which is a loss. Therefore, the net revaluation gain is ₹12,000 − ₹8,000 = ₹4,000. In the exam, first identify the gain or loss on each asset and then offset the two amounts.

Revaluation profit is credited to old partners' capital in old ratio. This is the final closing entry.

Revaluation loss is debited to old partners' capital in old ratio. When closing loss revaluation account is credited.

Revaluation profit belongs to the firm before admission. Therefore it is distributed among old partners in old profit sharing ratio.

Decrease in liability is a gain and decrease in asset is a loss. Net revaluation result is found by comparing both.