Where will the profit or loss on Revaluation Account be transferred to?
Answer & explanation
Correct answer: option 1
Correct answer: Option (1) → Capital accounts of the old partners in old ratio.
Concept: Profit or loss on revaluation arises from changes in the value of assets/liabilities that occurred before reconstitution, so it belongs to the old partners – per Reconstitution of a Partnership Firm – Retirement/Death of a Partner.
Since these gains/losses accrued while the firm was constituted by the old partners, the balance of the Revaluation Account is transferred to the OLD partners’ capital accounts in their OLD profit-sharing ratio. Pre-reconstitution results do not concern the new partner or the new ratio, so the other options are wrong.