Which item will be treated as gain in Revaluation Account?

Correct answer: Decrease in liability

The governing rule of a Revaluation Account is that an increase in an asset or a decrease in a liability creates a gain, while a decrease in an asset or an increase in a liability creates a loss. When a liability decreases, the firm is relieved from part of its obligation, so its net worth improves. Therefore, a decrease in liability is recorded on the credit side of the Revaluation Account and contributes to revaluation profit. A decrease in an asset and an increase in a liability are normally debit items because they reduce net assets. A new provision is also generally treated as a liability or expense adjustment and does not represent this gain.