Accountancy Part AAdmission of a Partner

At the time of reconstitution of partnership firm, recording of an un…

At the time of reconstitution of partnership firm, recording of an unrecorded asset will lead to __________.

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → Gain to existing partners

On reconstitution, an asset not shown in the books is brought in by debiting the asset account and crediting the Revaluation Account. A credit to the Revaluation Account is a gain, and it goes to the existing (old) partners in their old ratio.

Option (1) Loss to existing partners — Incorrect. A loss arises from an unrecorded liability, which is debited to the Revaluation Account.

Option (2) Gain to existing partners — Correct. The firm’s assets rise with no matching liability.

Option (3) Neither gain nor loss to the existing partners — Incorrect. The credit to the Revaluation Account changes their capitals.

Option (4) Decrease in Reserves of the firm — Incorrect. Recording the asset does not touch the reserves.

NCERT (2026-27 edition):
Revaluation of Assets and Reassessment of Liabilities – “… In other words, 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.”