Prepaid insurance ₹12600 is in balance sheet but ₹4200 of it has expired. What happens in revaluation?

Correct answer: ₹4200 debit

The direct answer is option A: ₹4,200 is debited to the Revaluation Account. Prepaid insurance is initially an asset because the firm has paid for insurance that will provide benefit in a future period. Here the balance sheet shows ₹12,600, but ₹4,200 of the insurance has already expired. The expired part no longer gives any future benefit, so it must be removed from the asset. Removing an asset or reducing its value is a loss in revaluation. Step by step: total prepaid insurance is ₹12,600; expired portion is ₹4,200; remaining asset is ₹12,600 − ₹4,200 = ₹8,400; the decrease of ₹4,200 is debited to Revaluation Account. Option A is correct because an expired asset creates a loss. Option B is wrong because a credit represents a gain or increase, not the loss caused by expiry. Option C is wrong because the whole ₹12,600 has not expired; ₹8,400 remains useful. Option D is wrong because the expired amount must be adjusted, so it cannot be ignored. Memory cue: an expired prepaid expense is no longer an asset, so debit the expired portion.