Identify the Cases when Revaluation Account is prepared.
(A) Admission of a partner
(B) Dissolution of a partnership firm
(C) Retirement of a partner
(D) Change in the profit sharing ratio among existing partners
(E) Adjustment of Capitals of partners
Choose the correct answer from the options given below.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (C) and (D) only
A revaluation account is prepared in accounting when there is a need to adjust the values of assets and liabilities to their current fair market values.
The Revaluation Account is prepared in the following cases:
Admission of a partner (A): When a new partner is admitted, the existing assets and liabilities may need to be revalued to reflect their current market value.
Retirement of a partner (C): Similar to admission, when a partner retires, the firm's assets and liabilities are revalued to ensure that the retiring partner receives a fair share.
Change in the profit-sharing ratio among existing partners (D): If the profit-sharing ratio changes among existing partners, a revaluation of assets and liabilities is needed to adjust their capital accounts accordingly.
*Cases where Revaluation Account is NOT prepared:
Dissolution of a partnership firm (B): At this stage, a Realisation Account is prepared instead of a Revaluation Account.
Adjustment of Capitals of partners (E): This typically involves adjusting the capital accounts based on the agreed terms, but it does not necessarily require a Revaluation Account.
So, the correct answer is (A), (C) and (D) only.