Accountancy Part AAdmission of a Partner

Where will the profit or loss on Revaluation Account be transferred t…

Where will the profit or loss on Revaluation Account be transferred to?

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Capital accounts of the old partners in old ratio.

Revaluation settles the change in the value of assets and liabilities up to the date of admission. That gain or loss arose before the new partner joined, so it belongs to the old partners, and they share it in the old ratio, the ratio in which they shared everything in that period.

A gain: Revaluation A/c Dr., To Old Partners’ Capital A/cs
A loss: Old Partners’ Capital A/cs Dr., To Revaluation A/c

Letting the new partner share a revaluation gain would hand him a profit made before he joined; making him bear a loss would charge him for a fall in value he had nothing to do with.

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. … 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.”

Where will the profit or loss on Revaluation Account be transferred to?

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Capital accounts of the old partners in old ratio.

A gain: Revaluation A/c Dr., To Old Partners’ Capital A/cs
A loss: Old Partners’ Capital A/cs Dr., To Revaluation A/c

Letting the new partner share a revaluation gain would hand him a profit made before he joined; making him bear a loss would charge him for a fall in value he had nothing to do with.