On the admission of a new partner, an increase in the value of assets is debited to:
On the admission of a new partner, an increase in the value of assets is debited to:
Solution
Solution
When a new partner is admitted, assets are revalued to reflect their current market value. An increase in the value of an asset represents an appreciation.
Accounting Treatment for Increase in Asset Value
According to the accounting principle, when an asset increases in value:
Assets Account is Debited (to record the increase in asset value)
Revaluation Account/Profit and Loss Adjustment Account is Credited (to record the revaluation gain)
The journal entry would be:
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Asset Account | xxx | |
| To Revaluation Account/P&L Adjustment Account | xxx | |
| (Being increase in value of asset recorded) |
Why Not Other Options?
Profit and Loss Adjustment Account: This account is credited for an increase in asset value, not debited. It records the gain from revaluation.
Old Partners' Capital Accounts: These accounts receive the revaluation gain eventually, but the first entry for asset appreciation is made in the Asset Account itself. The profit from Revaluation Account is then transferred to old partners' capital accounts.
All Partners' Capital Account: Revaluation gains belong only to old partners (in their old ratio) as they occurred before the new partner's admission.
Correct Answer: Option 2 - Assets Account
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2022: 30 Aug Shift 2