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Financial Accounting · Admission of Partner

Revaluation Account on Admission of a Partner

Updated 10 October 2026 · Fact-checked

On admission of a partner, assets and liabilities are revalued to current values so the new partner neither gains nor loses from old values. Changes go through a Revaluation Account. Its profit or loss is shared by the old partners in their old profit sharing ratio and credited or debited to their capital accounts.

Understand Revaluation of Assets and Liabilities

A firm's books show assets and liabilities at old book values. Some may be worth more or less today. Some items may not be in the books at all, such as an accrued income or an unrecorded liability.

When a new partner joins, he buys a share in the firm's future profits. If old values stay, the gain or loss from changes in value would wrongly be shared with the new partner. That gain or loss belongs to the old partners, because it arose before he came in.

So you open a Revaluation Account. Increases in assets and decreases in liabilities are gains and go to the credit side. Decreases in assets and increases in liabilities are losses and go to the debit side. Unrecorded assets are credited and unrecorded liabilities are debited.

The balance is the net profit or loss on revaluation. You transfer it to the old partners' capital accounts in the old profit sharing ratio. After this, the Balance Sheet shows the assets and liabilities at their revised values.

Key rules to remember

Revaluation Account: debit side
Dr: decrease in assets, increase in liabilities, unrecorded liabilities, expenses of revaluation
These are losses. Each reduces the value of net assets.
Revaluation Account: credit side
Cr: increase in assets, decrease in liabilities, unrecorded assets
These are gains. Each raises the value of net assets.
Result of revaluation
Profit = total credits − total debits (if credits are larger); Loss = total debits − total credits (if debits are larger)
Balance is shared in the old ratio, not the new ratio.
Transfer entry on profit
Revaluation A/c Dr; To Old Partners' Capital A/cs (old ratio)
On loss, reverse the entry: Old Partners' Capital A/cs Dr; To Revaluation A/c.
Revised book value
New value = Old book value + increase − decrease
Show this in the post-admission Balance Sheet.

How to solve Revaluation of Assets and Liabilities questions

Use this order for any revaluation question on admission. It keeps every adjustment in one place and avoids missed items.

  1. 1Read all adjustments. List each asset and liability with its old and new value.
  2. 2Mark each change as a gain or a loss. Increase in asset or decrease in liability is a gain. The opposite is a loss.
  3. 3Add unrecorded assets to the credit side and unrecorded liabilities to the debit side.
  4. 4Write the Revaluation Account in T-format with each item on the correct side.
  5. 5Total both sides and find the balancing figure. This is the profit or loss on revaluation.
  6. 6Share it among old partners in the old ratio and pass the transfer entry to their capital accounts.
  7. 7Carry revised values into the new Balance Sheet. Include unrecorded items now as recorded.

Quickest way: Net effect method

When to use it: Use it when the question asks only for the profit or loss on revaluation or each partner's share, and not the full account.

  1. Write each adjustment as +amount (gain) or −amount (loss).
  2. Add them to get the net gain or loss.
  3. Multiply by each old partner's old share.
  4. Write the Revaluation Account only if the question asks for it. Still show the working for step marks.

Common mistakes in Revaluation of Assets and Liabilities

  • Sharing the revaluation result in the new ratio.

    Students see the new partner on the Balance Sheet and include him.

    Fix: Revaluation relates to the period before admission. Always use the old ratio and only old partners.

  • Putting a decrease in an asset on the credit side.

    Confusion between the asset account and the Revaluation Account.

    Fix: Ask whether the change is a gain or loss to the firm. A loss is always a debit in the Revaluation Account.

  • Ignoring unrecorded assets or liabilities.

    They are mentioned in a side note and are easy to miss.

    Fix: Underline every unrecorded item. Credit unrecorded assets and debit unrecorded liabilities.

  • Adding a liability increase to the credit side.

    Mixing up how liabilities and assets behave.

    Fix: An increase in a liability is a loss and goes to the debit. A decrease in a liability is a gain and goes to the credit.

  • Using the old book value in the new Balance Sheet.

    Students copy the old Balance Sheet and forget the adjustments.

    Fix: After the account, update each item to its revalued figure and tick it off against your list.

Worked examples

Example 1

A and B share profits 3:2. They admit C for 1/5 share. On admission: stock of ₹1,00,000 is revalued at ₹90,000; building of ₹3,00,000 is appreciated by 10%; a creditor of ₹20,000 is not expected to be claimed and is written off. Prepare the Revaluation Account and show the partners' shares.

Show the solution
  1. Stock decreases by ₹10,000. This is a loss, so debit ₹10,000.
  2. Building increases by 10% of ₹3,00,000 = ₹30,000. This is a gain, so credit ₹30,000.
  3. Creditor written off is a decrease in liability of ₹20,000. This is a gain, so credit ₹20,000.
  4. Total credits = ₹30,000 + ₹20,000 = ₹50,000. Total debits = ₹10,000.
  5. Profit on revaluation = ₹50,000 − ₹10,000 = ₹40,000.
  6. Share in the old ratio 3:2. A gets ₹40,000 × 3/5 = ₹24,000. B gets ₹40,000 × 2/5 = ₹16,000.
  7. Entry: Revaluation A/c Dr ₹40,000; To A's Capital A/c ₹24,000; To B's Capital A/c ₹16,000.

Answer: Profit on revaluation is ₹40,000, credited to A ₹24,000 and B ₹16,000.

Example 2

X and Y share profits 2:1. Z is admitted. Machinery of ₹2,50,000 is to be reduced by 8%. Outstanding rent of ₹15,000, not recorded in the books, is to be recognised. Investments with a book value of ₹60,000 have a market value of ₹66,000. Prepare the Revaluation Account and find each partner's share.

Show the solution
  1. Machinery decreases by 8% of ₹2,50,000 = ₹20,000. This is a loss, so debit ₹20,000.
  2. Unrecorded outstanding rent is an unrecorded liability of ₹15,000. This is a loss, so debit ₹15,000.
  3. Investments increase by ₹66,000 − ₹60,000 = ₹6,000. This is a gain, so credit ₹6,000.
  4. Total debits = ₹20,000 + ₹15,000 = ₹35,000. Total credits = ₹6,000.
  5. Loss on revaluation = ₹35,000 − ₹6,000 = ₹29,000.
  6. Share in the old ratio 2:1. X bears ₹29,000 × 2/3 = ₹19,333 (rounded). Y bears ₹29,000 × 1/3 = ₹9,667 (rounded).
  7. Entry: X's Capital A/c Dr ₹19,333; Y's Capital A/c Dr ₹9,667; To Revaluation A/c ₹29,000.

Answer: Loss on revaluation is ₹29,000, borne by X ₹19,333 and Y ₹9,667 (rounded to the nearest rupee).

Exam tips

  • Draw the Revaluation Account first. Marks are given for correct sides and the correct balancing figure.
  • Write the ratio used for sharing in the working. Examiners check that you used the old ratio.
  • Look for unrecorded items and expenses of revaluation in the question text, since they often decide the final answer.
  • In MCQs, decide gain or loss for each item first. There is no negative marking, so always attempt every MCQ.
  • In comprehensive problems, tick off each adjustment in the Balance Sheet after the Revaluation Account so none is left unrevised.

Practice questions from Admission of Partner

Revaluation of Assets and Liabilities in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Revaluation of Assets and Liabilities: frequently asked questions

Why is the Revaluation Account shared in the old ratio?

The gain or loss arose before the new partner joined. So only the old partners, who owned the firm then, get the benefit or bear the loss.

Where do you record an unrecorded asset?

Credit it in the Revaluation Account as a gain and show it as an asset in the new Balance Sheet. For an unrecorded liability, debit the Revaluation Account and show the liability in the new Balance Sheet.

What if the question says the revised values are not to be shown in the books?

If the assets and liabilities are to remain at old values, prepare a Memorandum Revaluation Account. First record the gain or loss in the old ratio. Then pass a reversing entry in the new ratio among all partners, including the new partner, so the books keep the old values.

Is an increase in a liability a gain or a loss?

It is a loss. The firm now owes more, so the net assets reduce. Debit the Revaluation Account.