Understanding the Revaluation Account

The Revaluation Account is a nominal account prepared at the time of changes in the profit sharing ratio among partners, admission of a new partner, retirement or death of a partner, or dissolution of a partnership. Its purpose is to record the changes in the value of assets and liabilities. Gains from revaluation (increase in asset value, decrease in liability value, unrecorded assets) are credited, and losses from revaluation (decrease in asset value, increase in liability value, unrecorded liabilities) are debited. The net balance of the Revaluation Account represents the profit or loss on revaluation, which is transferred to the partners' capital accounts in their old profit sharing ratio.

Analyzing Items for Revaluation Account

Let's examine each item provided in the question to determine if it is shown in the Revaluation Account:

• (A) Unrecorded Asset: An unrecorded asset is an asset that exists but was not previously recorded in the books. When brought into the books, its value increases the total assets. This increase in asset value is a gain and is credited to the Revaluation Account. So, unrecorded assets are shown in the Revaluation Account.
• (B) Workmen Compensation Reserve: This is a reserve created out of undistributed profits to meet future liabilities towards workmen compensation. While potential claims against this reserve might involve the Revaluation Account if the liability exceeds the reserve, the reserve itself is not an asset or liability whose value is being revalued. It represents appropriated profits. Thus, the reserve itself is not typically shown as an item being revalued in the Revaluation Account.
• (C) Decrease in fixed Asset: When the value of a fixed asset decreases, it represents a loss on revaluation. This decrease is debited to the Revaluation Account. Therefore, a decrease in a fixed asset is shown in the Revaluation Account.
• (D) Increase in Inventory: When the value of inventory increases, it represents a gain on revaluation. This increase is credited to the Revaluation Account. Therefore, an increase in inventory value is shown in the Revaluation Account.
• (E) Drawings of partner: Drawings represent amounts of cash or goods withdrawn by a partner for personal use. These directly affect the partner's capital or current account and are not related to the revaluation of firm's assets or liabilities. Drawings are not shown in the Revaluation Account.

Summary of Items Shown in Revaluation Account

Based on the analysis:

• (A) Unrecorded Asset - Shown (credited)
• (B) Workmen Compensation Reserve - Not typically shown
• (C) Decrease in fixed Asset - Shown (debited)
• (D) Increase in Inventory - Shown (credited)
• (E) Drawings of partner - Not shown

Items (C) and (D) are clearly shown in the Revaluation Account, representing losses and gains on existing assets, respectively. Item (A) is also typically shown as a gain. However, considering the provided options, which focus on specific combinations, options (C) and (D) are correctly identified as items that appear in the Revaluation Account.

Revaluation Account Entries Explained

The journal entries for the items discussed would typically be:

• For Decrease in Fixed Asset (e.g., Machinery):
  

  Revaluation A/c   Dr.

      To Machinery A/c

  (Being decrease in the value of machinery)

• For Increase in Inventory:
  

  Inventory A/c   Dr.

      To Revaluation A/c

  (Being increase in the value of inventory)

• For Unrecorded Asset (e.g., Investments):
  

  Investments A/c   Dr.

      To Revaluation A/c

  (Being unrecorded investments brought into books)

Revision Table: Revaluation Account Items

Additional Information on Revaluation Account

The Revaluation Account is also known as the Profit and Loss Adjustment Account. It is used to adjust the values of assets and liabilities to their current market or realizable values without altering the original cost records in the main books. This adjustment helps in reflecting the true and fair view of the firm's financial position at the time of reconstitution. The profit or loss from revaluation is shared among the old partners in their old profit-sharing ratio because this profit or loss relates to the period before the change in the partnership structure. Liabilities like Outstanding Expenses or Accrued Income are also adjusted through this account if they are unrecorded or their values change.