Meaning of Undervalued and Overvalued (in case of an asset) and its treatment. Also are liabilities undervalued, overvalued too? 

Undervaluation implies that an asset or a liability is shown at a lower value in the books than its actual value. On the other hand, overvaluation means that an asset or a liability is shown at a higher value than its actual value. The given below is the treatment of undervaluation and overvaluation of assets or liabilities in the Revaluation Account.

Case

Meaning and Impact

Treatment

Undervaluation of Asset

This implies that the asset is shown in the books at a lesser value than its actual value.

Therefore, the said asset should be increased with the understated amount (i.e. Actual Value – Given Value)

This is a gain for the business therefore, it is shown on the Credit Side of the Revaluation Account

 

 

 

Overvaluation of Asset

This implies that the asset is shown in the books at a higher value than its actual value.

Therefore, the said asset should be reduced with the overstated amount (i.e. Given Value – Actual Value)

This is a loss for the business, therefore, it is shown on the Debit Side of the Revaluation Account

 

 

 

Undervaluation of Liability

This implies that the liability is shown in the books at a lesser value than its actual value.

Therefore, the said liability should be increased with the understated amount (i.e. Actual Value – Given Value)

This is a loss for the business, therefore, it is shown on the Debit Side of the Revaluation Account

 

 

 

Overvaluation of Liability

This implies that the liability is shown in the books at a higher value than its actual value.

Therefore, the said liability should be reduced with the overstated amount (i.e. Given Value – Actual Value)

This is a gain for the business therefore, it is shown on the Credit Side of the Revaluation Account

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First of all u have to understand that these both concepts are of mistakes in calculation 

undervalued means the wrong calculation of total of some account which is less than the actual amount
overvalued means the wrong calculation of total of some account which is more than the actual amount

treatement in rectification is to pass the rectification entry in which the mentioned account is increased by debiting or crediting which ever is favourable and the other account as per dual concept of accounting is oppositely credited of debited

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Hi Jaspreet,

Undervalued/ Overvalued Assets or Liabilities don't have wrong calculation, but their valuation is incorrect. Well, this is a higher concept in accounting, but as per the terminology the proper term is "valuation".

.

The rest of your answer is appropriate for this level of study.

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