Accountancy Part AReconstitution of Partnership Firm: Retirement and Death

The profit or loss on revaluation of assets and liabilities are distr…

The profit or loss on revaluation of assets and liabilities are distributed in ______.

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → Old ratio

The rise or fall in the value of assets and liabilities took place while the old partnership was running, so the gain or loss belongs to the partners of that period in the ratio in which they then shared profits — the old ratio. On retirement or death this includes the outgoing partner; on admission the new partner gets no part of it.

The new ratio applies only to future profits. The gaining ratio and the sacrificing ratio are used for goodwill, which compensates for a change in shares, not for gains that have already arisen.

NCERT (2026-27 edition):
Adjustment for Revaluation of Assets and Liabilities – “… As learnt in case of admission of a partner, a Revaluation Account is prepared in order to ascertain net gain (loss) on revaluation of assets and/or liabilities and bringing unrecorded items into firm’s books and the same is transferred to the capital account of all partners including retiring/deceased partners in their old profit sharing ratio.”