At the time of admission of a partner, assets are revalued and assessment of the liabilities is also done so that these are brought in the books at their correct values. For this purpose:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Revaluation A/c is prepared
Before a new partner comes in, the firm checks whether its assets and liabilities stand in the books at their current values. Every increase or decrease found is recorded in a Revaluation Account, and its final balance, a net gain or a net loss, is shared by the old partners. The new partner then starts with a balance sheet that shows the firm as it really is.
Why the other options are incorrect
Option (2) Realisation A/c is prepared — Incorrect. A Realisation Account is opened only when the firm is dissolved, to record the sale of assets and the payment of liabilities. On an admission the firm carries on, so nothing is realised.
Option (3) Profit & Loss A/c is prepared — Incorrect. The Profit and Loss Account shows the result of trading for the year. A change in the value of an asset or a liability on reconstitution is not a trading result.
Option (4) Profit & Loss Appropriation A/c is prepared — Incorrect. This account shows how the net profit is divided among the partners (interest on capital, salary, share of profit). It has no place for revalued assets.
NCERT (2026-27 edition): |