The accountant debited ₹22000 decrease in liability to Revaluation Account. What is the correct treatment?

Correct answer: It should be credited because liability decrease is gain

The direct answer is option B: ₹22,000 should be credited to the Revaluation Account because a decrease in liability is a gain. A liability is an amount the firm must pay or settle. When that obligation becomes smaller, the firm’s burden decreases and its net position improves. In revaluation accounting, an increase in liability is a loss and is debited, while a decrease in liability is a gain and is credited. Step by step: the liability decreases by ₹22,000; the firm now owes ₹22,000 less; this creates a gain; therefore Revaluation Account is credited by ₹22,000. Option A is wrong because debiting would treat the decrease as a loss, which reverses the rule. Option B is correct because the firm benefits when an existing liability is reduced. Option C is wrong because the adjustment belongs to the firm’s revaluation process, not directly to the new partner’s account. Option D is wrong because goodwill is a separate matter concerning the firm’s reputation and earning capacity; a liability reduction is not automatically goodwill. The opposite rule is also useful: an increase in liability is debited as a loss. Memory cue: less liability means less burden, so credit revaluation.