On the retirement of an existing partner, an increase in the value of a liability will be credited to:-

Liability Account

The correct answer is option 3- Liability Account.

On the retirement of an existing partner, an increase in the value of a liability will be credited to Liability Account.

The revaluation account is credited with increase in the value of each asset and decrease in its liabilities because it is a gain and is debited with decrease in the value of assets and increase in its liabilities is debited to revaluation account because it is a loss. Similarly unrecorded assets are credited and unrecorded liabilities are debited to the revaluation account. If the revaluation account finally shows a credit balance then it indicates net gain and if there is a debit balance then it indicates net loss which will be transferred to the capital accounts of the old partners in old ratio.

The journal entry for increase in liability is as follows-
Revaluation A/c  Dr.
   To Liability A/c