The purpose of preparing the Revaluation Account is:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → To find out gain or loss on revaluation of assets and reassessment of liabilities both

When the constitution of a firm changes, its assets and liabilities are brought to their current values. The Revaluation Account collects the change in the value of every asset and every liability, so its balance is the net gain or loss on the whole exercise. That balance then goes to the old partners’ capital accounts in their old ratio.

Why the other options are incorrect

Option (2) To find out gain or loss on revaluation of each asset only — Incorrect. Liabilities are reassessed as well, and an increase or decrease in a liability is also a loss or gain recorded in this account.
Option (3) To ascertain gain or loss on reassessment of each liability only — Incorrect. Assets are revalued too; leaving them out would miss most of the gain or loss.
Option (4) To find out gain or loss on realisation asset and payment of liabilities — Incorrect. That is the job of the Realisation Account, prepared on dissolution, when assets are sold and liabilities paid off. On reconstitution the firm goes on, so nothing is realised.

NCERT (2026-27 edition):
Revaluation of Assets and Reassessment of Liabilities – “… In case the assets are overstated or understated, these are revalued. Similarly, a reassessment of the liabilities is also done so that these are brought in the books at their correct values. At times there may also be some unrecorded assets and liabilities of the firm. These also have to be brought into the books of the firm. For this purpose the firm has to prepare the Revaluation Account. The gain or loss on revaluation of each asset and liability is transferred to this account and finally its balance is transferred to the capital accounts of the old partners in their old profit sharing ratio.”

The purpose of preparing the Revaluation Account is:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → To find out gain or loss on revaluation of assets and reassessment of liabilities both

Why the other options are incorrect

Option (2) To find out gain or loss on revaluation of each asset only — Incorrect. Liabilities are reassessed as well, and an increase or decrease in a liability is also a loss or gain recorded in this account.
Option (3) To ascertain gain or loss on reassessment of each liability only — Incorrect. Assets are revalued too; leaving them out would miss most of the gain or loss.
Option (4) To find out gain or loss on realisation asset and payment of liabilities — Incorrect. That is the job of the Realisation Account, prepared on dissolution, when assets are sold and liabilities paid off. On reconstitution the firm goes on, so nothing is realised.