On the admission of a new partner increa

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Target Exam

CUET

Subject

-- Accountancy Part A

Chapter

Admission of a Partner

Question:

On the admission of a new partner increase in the value of assets is debited to:

Options:

Profit and Loss Adjustment account

Assets account

Revaluation Account

Old partner's capital account

Correct Answer:

Assets account

Explanation:

The correct answer is Option (2) → Assets account

The accounting entry to record an increase in the value of an asset upon reconstitution (like admission of a partner) is:

\begin{array}{l r} \text{Asset A/c} & \text{Dr.} \\ \text{To Revaluation A/c} & \text{Cr.} \\ \end{array}

\begin{array}{l r} \text{Asset A/c} & \text{Dr.} \\ \text{To Revaluation A/c} & \text{Cr.} \\ \end{array}

Debit to Asset Account: The individual Asset Account is debited to reflect the actual increase in its value (i.e., to bring the asset up to its new market value).
Credit to Revaluation Account: The Revaluation Account (or Profit and Loss Adjustment Account) is credited, as the increase in asset value is a gain for the firm, which will eventually be transferred to the old partners' capital accounts.