When a new partner is admitted, the increase in the value of the assets is debited to which account?

When a new partner is admitted, assets and liabilities need to be revalued to reflect their current market values. This ensures the old partners get credit for any appreciation that occurred during their tenure.

When an asset's value increases, the accounting entry is:

Asset Account Dr.

To Revaluation Account (or Profit and Loss Adjustment Account)

The debit entry goes to the Asset Account itself to record the increased value in the books. This brings the asset's book value to its current market value.

For example, if Building with book value ₹5,00,000 is revalued at ₹6,00,000, the entry would be:

Building Account Dr. ₹1,00,000

To Revaluation Account ₹1,00,000

The ₹1,00,000 increase is debited to the Building Account (Asset Account), which increases its balance from ₹5,00,000 to ₹6,00,000.

The credit side goes to Revaluation Account, which is then distributed to old partners in their old profit-sharing ratio. This compensates them for the appreciation that occurred before the new partner joined.

Therefore, Option 1: Assets account is correct.