Extract of Balance Sheet of a Partnership firm is given below:Liabili…

Extract of Balance Sheet of a Partnership firm is given below:

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
		Debtors 8,00,000 Less (-) Provision for Bad Debts (20,000)	7,80,000

Provision for bad debts is to be made equal to 5% of debtors, for this adjustment what journal entry will be recorded related to Revaluation A/c?

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → Revaluation A/c is debited and Provision for Bad Debts A/c is credited with Rs. 20,000

On revaluation, the entry records only the increase in the provision over what already stands in the books, and a larger provision is a loss.

Provision required = 5% of Rs. 8,00,000 = Rs. 40,000
Provision already in the books = Rs. 20,000
Additional provision = Rs. 40,000 − Rs. 20,000 = Rs. 20,000

Revaluation A/c Dr. 20,000
To Provision for Bad Debts A/c 20,000

The loss is debited to Revaluation A/c. The provision is a reduction in the value of debtors, so the Provision for Bad Debts A/c is credited. Rs. 40,000 is the full provision needed, but Rs. 20,000 of it is already there, so only the difference is entered.

NCERT (2026-27 edition):
Revaluation of Assets and Reassessment of Liabilities – “… The gain or loss on revaluation of each asset and liability is transferred to this account and finally its balance is transferred to the capital accounts of the old partners in their old profit sharing ratio. 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.”

NCERT (2026-27 edition):
Revaluation of Assets and Reassessment of Liabilities – “… Note: Entries (i), (ii), (iii) and (iv) are recorded only with the amount increase and decrease in the value of assets and liabilities.”