At the time of reconstitution, which of the following items is recorded on the credit side of the Revaluation Account?

Correct answer: Decrease in the value of a liability

A decrease in the value of a liability reduces the firm’s obligation and creates a revaluation gain. Hence, it is recorded on the credit side of the Revaluation Account. An unrecorded liability, a decrease in an asset’s value, and the writing off of bad debts create losses or expenses and are therefore debited. Exam tip: Credit increases in assets and decreases in liabilities; debit decreases in assets and increases in liabilities.