What is Revaluation Account?

With time it becomes essential to revise the value of the assets and liabilities to ascertain the current value of these assets and liabilities because the actual value may differ from the value mentioned in the firm’s balance sheet. This act of revising the value of the assets and liabilities is called the Revaluation of Assets and Liabilities.

Nature:

The nature of the Revaluation Account is that of a Nominal Account. Any increase in the value of assets or decrease in the value of liabilities is considered a profit for the firm. The differential amount is recorded on the credit side of the revaluation account. Similarly, any decrease in the value of assets or increase in the value of liabilities is a loss for the firm, and the differential value is debited to the revaluation account.

Explanation of certain words used in revaluation:

• Increased To/ Raised To: This means the value of the asset or liability has been increased to the adjustment amount. The value recorded in the revaluation account is the difference between the adjustment amount and the amount shown in the balance sheet, and the adjustment amount is recorded in the balance sheet.
• Increased By/ Raised By: This means the differential amount is already given in the adjustment, which is to be recorded, as it is in the revaluation account, and is added to the value of assets and liabilities in the balance sheet.
• Decreased To/ Written down To: This means the value of the asset or liability has been reduced to the adjustment amount. The difference between the adjustment amount and the amount shown in the balance sheet is shown on the correct side of the revaluation account, and the adjustment amount is recorded in the balance sheet.
• Decreased By/ Written down By: This means the differential amount is already given in the adjustment, which is to be recorded, as it is in the revaluation account, and is deducted from the value of assets and liabilities in the balance sheet.
• Valued At/ Taken At: This means the amount given in the adjustment is the value of the assets or liability. If such asset or liability is unrecorded, then the total amount of adjustment is recorded on the correct side of the revaluation account and in the balance sheet as well.

The value of Assets and Liabilities undergoes a change with the passage of time due to many reasons, like regular wear and tear, appreciation in the value of assets, bankruptcy of any debtor, and so on. In a Partnership firm, when a new partner is admitted into the business, it becomes necessary to revalue the assets and reassess the liabilities of the firm to ascertain the current value. The Revaluation of Assets and Reassessment of Liabilities are done because of any change in the value of the assets and liabilities that belong to the period prior to the change in the profit-sharing ratio. Therefore, any increase or decrease in the value of the assets and liabilities shall be shared among all the partners in their old profit-sharing ratio. The Revaluation of Assets and Liabilities are recorded in a separate account named a Revaluation Account or Profit and Loss Adjustment Account.