The journal entries recorded for revaluation of assets and reassessment of liabilities are given here, find the correct:
(A) For increase in the value of an asset-
Asset A/c Dr.
To Revaluation A/c
(B) For reduction in the value of an asset-
Revaluation A/c Dr.
Asset A/c
(C) For increase in the amount of a liability-
Liability A/c Dr.
To Revaluation A/c
(D) For recording in the amount of a unrecorded liability-
Revaluation A/c Dr.
To Liability A/c
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is option 2- (A), (B) and (D) only.
(A) For increase in the value of an asset-
Asset A/c Dr.
To Revaluation A/c
This is true. The increase in asset value is a gain for the firm, so the asset is debited and the gain is credited to the Revaluation Account.
(B) For reduction in the value of an asset-
Revaluation A/c Dr.
Asset A/c
This is true. The decrease in asset value is a loss, so the Revaluation Account is debited (to recognize the loss) and the asset is credited.
(C) For increase in the amount of a liability-
Liability A/c Dr.
To Revaluation A/c
This is not true. An increase in liability is a loss, hence the Revaluation Account is debited and the liability is credited (to increase the amount owed). So, correct journal entry will be-
Revaluation A/c Dr.
To Liability A/c
(D) For recording in the amount of a unrecorded liability-
Revaluation A/c Dr.
To Liability A/c
This is true. Introducing an unrecorded liability results in a loss, so the Revaluation Account is debited.