Accountancy Part AAdmission of a Partner

At the time a new partner is admitted, revaluation of assets and liab…

At the time a new partner is admitted, revaluation of assets and liabilities is made for the:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → benefit of old partners

Assets and liabilities may have gained or lost value while the old partners ran the firm. Before a new partner comes in, they are revalued, and the profit or loss on revaluation is carried to the capital accounts of the old partners in their old profit sharing ratio. The gain that arose before the admission thus goes to the old partners alone, and the new partner's capital account is not touched.

Option (2) benefit of new partners — Incorrect. The revaluation result is not credited or debited to the new partner at all.

Option (3) mutual benefit of old and new partners — Incorrect. The new partner takes no share in the revaluation profit or loss; it is settled among the old partners only.

Option (4) none of the above — Incorrect. Revaluation is made so that the old partners get the change in value that took place during their time.

NCERT (2026-27 edition):
Revaluation of Assets and Reassessment of Liabilities – “At the time of admission of a new partner, it is always desirable to ascertain whether the assets of the firm are shown in books at their current values. 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.”