On admission the balance of Advertisement Expenditure Account ₹30,000 is considered worthless. What will be its effect?

Correct answer: Debit Revaluation Account by ₹30,000

Advertisement expenditure shown as an asset or deferred expenditure has no future benefit when it is declared worthless. Therefore, its entire book balance must be written off at the time of admission. Writing off an asset or an expense balance creates a loss for the existing firm. In accounting terms, the loss is recorded by debiting the Revaluation Account with ₹30,000 and crediting Advertisement Expenditure Account. The resulting revaluation loss is then transferred to the old partners’ capital or current accounts in their old profit-sharing ratio. It is not charged to the incoming partner’s capital account, and a worthless item cannot be credited as a gain. Hence option A is correct.