This amount will be writeen on cr side of revaluation account. then pass revaluation entry i. e prepaid insurance acoount dr to revaluation account.

Introduction:
In the context of NCERT Solutions - Chapter 3- Admission of a Partner-2, Partnership Account, Class 12, Accountancy, the topic of prepaid insurance arises. Prepaid insurance refers to the advanced payment made by a business for insurance coverage that will extend beyond the current accounting period. This payment is recorded as an asset on the balance sheet and is gradually recognized as an expense over the coverage period.

Explanation:
Prepaid insurance is an important concept in accounting as it involves the recognition of expenses over time rather than immediately. Let's understand this concept in detail:

1. Nature of Prepaid Insurance:
- Prepaid insurance is an asset because the business has made an advanced payment for future insurance coverage.
- It is recorded as a current asset on the balance sheet because the coverage period extends beyond the current accounting period.

2. Accounting Treatment:
- When the prepaid insurance is initially paid, it is recorded as a debit to the prepaid insurance account and a credit to the cash or bank account.
- As the coverage period progresses, a portion of the prepaid insurance is recognized as an expense and transferred from the prepaid insurance account to the insurance expense account.
- The expense is recorded by debiting the insurance expense account and crediting the prepaid insurance account.
- This process continues until the entire prepaid insurance is recognized as an expense.

3. Example:
Let's consider an example to understand the accounting treatment of prepaid insurance:
Suppose a business pays $1,000 in advance for insurance coverage for the next 12 months. The accounting treatment would be as follows:
- Initially, debit the prepaid insurance account by $1,000 and credit the cash or bank account by $1,000.
- Each month, recognize $1,000/12 = $83.33 as insurance expense. Debit the insurance expense account by $83.33 and credit the prepaid insurance account by $83.33.
- Repeat this process for the remaining months until the entire prepaid insurance is recognized as an expense.

Conclusion:
Prepaid insurance is an important concept in accounting that involves the recognition of expenses over time. It is recorded as an asset initially and gradually recognized as an expense over the coverage period. Understanding the accounting treatment of prepaid insurance is crucial for accurate financial reporting.