At the time of a new partner’s admission, the old partners discovered that a loan of ₹50,000 recorded in the books was actually a partner’s personal loan. What effect will removing this liability from the firm’s books have on the Revaluation Account?

Correct answer: Credit Revaluation Account by ₹50,000

The loan was not a genuine liability of the firm, so removing it reduces the firm’s liabilities by ₹50,000. A decrease in liability is a gain on revaluation; therefore, the Revaluation Account is credited by ₹50,000. The new partner’s account is not debited because this adjustment relates to correcting the firm’s books before admission. Exam tip: an increase in liability is debited to Revaluation, while a decrease in liability is credited to it.