The correct answer is Option (1) → (A), (C) and (D) only
A Revaluation Account is prepared whenever the firm goes on with a changed partnership and its assets and liabilities must be brought to current values.
(A) Admission of a partner — True. Assets and liabilities are revalued so that the gain or loss goes to the old partners.
(B) Dissolution of a partnership firm — False. The firm closes; a Realisation Account is prepared instead.
(C) Retirement of a partner — True. The retiring partner must get his share of any gain or loss on revaluation.
(D) Change in the profit sharing ratio among existing partners — True. The book treats it in the same way as an admission.
(E) Adjustment of Capitals of partners — False. Capitals are adjusted by cash brought in or paid out; no revaluation of assets is involved.
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.” NCERT (2026-27 edition):
Adjustment for Revaluation of Assets and Liabilities – “At the time of retirement or death of a partner there may be some assets which may not have been shown at their current values. Similarly, there may be certain liabilities which have been shown at a value different from the obligation to be met by the firm. Not only that, there may be some unrecorded assets and liabilities which need to be brought into books. 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):
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):
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. Hence, all assets (other than cash in hand bank balance and fictitious assets, if any), and all external liabilities are transferred to this account. It also records the sale of assets, and payment of liabilities and realisation expenses.” |
