The correct answer is Option (4) → Dissolution of firm
A Revaluation Account is prepared when the firm continues under a new agreement, so that the gain or loss on revaluing assets and liabilities is shared by the partners in their old ratio. On dissolution the firm comes to an end: assets are sold and liabilities paid, and the result is worked out in a Realisation Account, not a Revaluation Account.
Option (1) Admission of partner(s) — A true statement. A Revaluation Account is prepared on admission.
Option (2) Change in profit sharing ratio — A true statement. It is prepared on a change in the ratio, as on admission.
Option (3) Retirement/Death of partner(s) — A true statement. It is prepared on retirement or death.
NCERT (2026-27 edition):
Change in Profit Sharing Ratio among the Existing Partners – “… Any change, in the profit sharing ratio, like admission of partner, may also involve adjustments in respect of revaluation of assets and liabilities, transfer of accumulated profit and losses to partners' capital accounts in the old profit sharing ratio and adjustment of partners' capitals, if specified, so as to make them proportionate to the new profit sharing ratio. All this is done in the same way as in case of admission of a partner.” 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.” NCERT (2026-27 edition):
Accounting Treatment – “When the firm is dissolved, its books of account are to be closed and the profit or loss arising on realisation of its assets and discharge of liabilities is to be computed. For this purpose, a Realisation Account is prepared to ascertain the net effect (profit or loss) of realisation of assets and payment of liabilities which may be is transferred to partner’s capital accounts in their profit sharing ratio.” |
