Accountancy Part AAdmission of a Partner

Which of the following is not a purpose of a firm preparing a Revalua…

Which of the following is not a purpose of a firm preparing a Revaluation Account?

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → To re-assess the profit-sharing ratio.

A Revaluation Account is prepared at the time of reconstitution so that the firm’s assets and liabilities stand at their correct current values before the new arrangement begins. Its balance, a gain or a loss, is then shared by the old partners in their old ratio. The profit-sharing ratio itself is settled by agreement among the partners; no account is prepared to work it out.

Option (1) To re-evaluate overstated or understated assets. — A true purpose of the account. Assets shown above or below their current value are revalued, and the increase or decrease is recorded in it.
Option (2) To re-assess the value of liabilities. — A true purpose of the account. Liabilities are reassessed so that they appear at the amount actually payable.
Option (3) To identify unrecorded assets and liabilities. — A true purpose of the account. Assets and liabilities left out of the books are brought into the books through the Revaluation Account.

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.”

Which of the following is not a purpose of a firm preparing a Revaluation Account?

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → To re-assess the profit-sharing ratio.

Option (1) To re-evaluate overstated or understated assets. — A true purpose of the account. Assets shown above or below their current value are revalued, and the increase or decrease is recorded in it.
Option (2) To re-assess the value of liabilities. — A true purpose of the account. Liabilities are reassessed so that they appear at the amount actually payable.
Option (3) To identify unrecorded assets and liabilities. — A true purpose of the account. Assets and liabilities left out of the books are brought into the books through the Revaluation Account.