Q.On admission of a new partner, the profit or loss on revaluation of assets and liabilities is transferred to:

Correct option: Revaluation Account. An unrecorded asset now brought into the books increases the firm's worth — a profit — so the Revaluation Account is credited while the asset account is debited.

Explanation

At the time of admission (or any reconstitution) assets and liabilities are re-valued through a Revaluation Account. When an asset that was not previously recorded is now brought into the books, the entry is:

The Revaluation Account is credited because the newly recognised asset is a gain to the firm.

The word/term is Loss on Revaluation (Revaluation Loss). A debit balance on the Revaluation Account shows that the decreases in asset values and increases in liabilities were greater than the gains.

Explanation

In the Revaluation Account, gains (increase in assets / decrease in liabilities) are credited and losses (decrease in assets / increase in liabilities) are debited. When the debit total exceeds the credit total, the balancing figure is a debit balance, which represents a loss on revaluation. This loss is transferred to the old partners' capital accounts in their old profit-sharing ratio.

Rise in asset value on revaluation = gain (profit). Option (c).

The Revaluation (Profit and Loss Adjustment) account records changes in the values of assets and liabilities, for example when a partner is admitted:

• Increase in an asset or decrease in a liability → gain (profit) → credited to Revaluation account.
• Decrease in an asset or increase in a liability → loss → debited to Revaluation account.

Since the question asks about an increase in the value of assets, it produces a gain. The net balance of the Revaluation account is finally shared among the old partners in their old profit-sharing ratio.

The answer is Debited.

When a partnership is reconstituted, assets and liabilities are revalued through the Profit and Loss Adjustment Account (Revaluation Account). It follows the normal rule that losses appear on the debit side and gains on the credit side:

A decrease in an asset's value reduces the firm's worth, i.e. it is a loss — so it is debited to the Profit and Loss Adjustment Account.

Revaluation A/c records the profit or loss on revaluation, so it is a nominal account.

In the TN HSC Class-12 Accountancy syllabus (Admission/Retirement of a Partner), when a firm is reconstituted the assets and liabilities are revalued and the resulting gain or loss is transferred to the partners' capital accounts through a Revaluation Account (also called Profit and Loss Adjustment A/c).

• Accounts are classified as Personal, Real and Nominal. Nominal accounts deal with expenses, losses, incomes and gains.

• The Revaluation A/c is credited with increases in assets / decreases in liabilities (gains) and debited with decreases in assets / increases in liabilities (losses); its balance is the revaluation profit or loss.

• Because it captures gains and losses, it is a nominal account, not a personal or real account.

On revaluation, an increase in the value of assets is a gain (profit) to the firm and is credited to the Revaluation Account — option (c).

In the TN HSC Commerce syllabus, whenever there is a reconstitution of a partnership firm (admission, retirement or death of a partner), assets and liabilities are revalued so that the resulting profit or loss belongs only to the old partners. The Revaluation Account (also called the Profit and Loss Adjustment Account) records these changes:

• Increase in the value of an asset → Gain → credited to Revaluation A/c.
• Decrease in the value of an asset → Loss → debited to Revaluation A/c.
• Increase in a liability → Loss → debited to Revaluation A/c.
• Decrease in a liability → Gain → credited to Revaluation A/c.

So an asset going up in value improves the firm's net worth and is therefore a gain, not a loss or an expense. Ruling out the other options: (a) Loss and (b) Expense are the opposite effect, and (d) None of these is wrong because a definite gain arises.

A fall in asset value is a loss on revaluation, so it is debited to the Profit & Loss Adjustment (Revaluation) Account.

At admission (also retirement/death) assets and liabilities are revalued through the Profit & Loss Adjustment Account (Revaluation Account). Its rules:

• Debit side = losses → decrease in assets and increase in liabilities.
• Credit side = gains → increase in assets and decrease in liabilities.

A decrease in the value of an asset reduces the firm's worth, i.e. it is a loss, so it is recorded on the debit side of the account. (Being credited/added/equal would wrongly treat the fall as a gain.)

The Revaluation Account is a nominal account prepared on admission, retirement or death of a partner to record changes in the values of assets and liabilities and to distribute the profit or loss on such revaluation among the old partners in their old ratio.

When a firm is reconstituted, its assets and liabilities are re-stated at their current values. Any increase in an asset or decrease in a liability is a gain (credited to Revaluation A/c); any decrease in an asset or increase in a liability is a loss (debited to Revaluation A/c). The balancing figure — the net profit or net loss on revaluation — is transferred to the old partners' capital accounts in their old profit-sharing ratio.

The Revaluation Account deals with the profit or loss on revaluing assets and liabilities, so it is a Nominal Account — option (d).

Accounts are classified as Personal, Real or Nominal:

• Personal accounts relate to persons/firms (e.g. a partner's capital account, a creditor).
• Real accounts relate to assets and properties (e.g. Machinery, Cash).
• Nominal accounts relate to expenses, losses, incomes and gains.

When a partner is admitted (or retires), assets and liabilities are revalued and the resulting increase/decrease is a gain or loss. These gains and losses are collected in the Revaluation Account, and its balancing figure (profit or loss on revaluation) is transferred to the old partners' capital accounts in their old ratio. Because it records losses and gains, it is a Nominal Account (the nominal-account rule: debit all expenses and losses, credit all incomes and gains).

An increase in liabilities on revaluation reduces the firm's net worth, so it is a loss — option (a).

When assets and liabilities are revalued (on a partner's admission, retirement or death), the treatment in the Revaluation Account follows a simple rule:

An increase in a liability means the firm owes more than was shown in the books (e.g. an unrecorded creditor or an increased provision). This extra obligation lowers the firm's net worth, so it is treated as a loss and debited to the Revaluation Account. The net loss is then borne by the old partners in their old profit-sharing ratio.