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Difficulty: EasyRevaluation of Assets and Liabilities

Match each partnership revaluation event on the left with its correct posting entry in the Revaluation Account on the right.

  • Increase in the valuation of plant and machineryCredit side of the Revaluation Account
  • Decrease in the valuation of freehold premisesDebit side of the Revaluation Account
  • Creation of a new provision for unrecorded accrued expensesDebit side of the Revaluation Account
  • Reduction in trade creditors due to discounts allowed by suppliersCredit side of the Revaluation Account

Answer

Increases in asset values and decreases in liability values are credited to the Revaluation Account as gains, whereas decreases in asset values and increases in liability values are debited to the Revaluation Account as losses.
The Revaluation Account functions as a nominal account. Any transaction that increases the net assets of the partnership (such as an appreciation in asset value or a reduction in liability value) represents a revaluation gain and is posted to the credit side. Any transaction that reduces net assets (such as asset write-downs or additional liabilities) represents a revaluation loss and is posted to the debit side.

Step-by-Step Solution

1
Classify each revaluation transaction as a gain or a loss to the partnership.
Plant increase and creditors reduction are gains; premises decrease and expense provision are losses.
Revaluation gains increase the overall net asset value of the firm, while revaluation losses reduce it.
2
Apply nominal account double-entry rules to the Revaluation Account.
Gains are posted on the credit side, and losses are posted on the debit side.
The Revaluation Account is a nominal account prepared to record profit or loss on the revaluation of assets and liabilities.

Key Concept

Double Entry Rules for Partnership Revaluation Account
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Topics

Revaluation of Assets and Liabilities

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