On the admission of a new partner increase in the value of assets is debited to:
Answer & explanation
Correct answer: option 2
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:
Asset A/c
To Revaluation A/cDr.Cr.
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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).
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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.