What is the final effect of an unrecorded liability paid in cash through revaluation process?

Correct answer: Revaluation loss and decrease in cash

An unrecorded liability is an obligation that existed but was not shown in the books. When it is discovered during reconstitution, it must be recognised because the firm is responsible for paying it. Recognition of the liability creates a loss in the Revaluation Account. If the firm pays it immediately in cash, cash also decreases by the amount paid. Therefore the final effects are a revaluation loss and a decrease in cash, making option A correct.

For example, if an unrecorded liability of ₹8,000 is paid, the Revaluation Account is debited by ₹8,000 because the firm has incurred a loss, and the Cash Account is credited by ₹8,000 because cash has gone out. The payment does not create a revaluation gain, increase capital, or have no effect. Although the liability itself may be recorded and then settled, the economic result remains the same: net assets fall and cash is reduced. Both parts of option A are therefore necessary.