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CA Foundation · Accounting · Partnership and LLP Accounts

On the admission of a new partner, the Revaluation Account of a firm shows a net profit of ₹12,000. Where is this profit transferred?

A profit on revaluation is credited to the old partners' capital accounts in their old profit-sharing ratio. It arises from the period before the new partner joined, so it belongs only to the old partners and the new partner gets no share.

  1. ACredited to the old partners' capital accounts in their old profit-sharing ratioCorrect
  2. BCredited to all partners' capital accounts including the new partner in the new ratio
  3. CCredited to the new partner's capital account only
  4. DCredited to the General Reserve account

Explanation

Revaluation relates to the period before admission, so any profit or loss belongs to the old partners. It is shared in their old profit-sharing ratio. Sharing it with the new partner would give him a benefit for a period when he was not a partner.

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