Revaluation of Assets and Liabilities, and Adjustment of Accumulated Profits and Reserves

Just as on admission or retirement, assets and liabilities are revalued to their true current worth at the date of a partner's death, so that the deceased partner's estate receives (or bears) a fair share of any appreciation or shortfall that had built up while they were still alive and a partner in the firm.

A Revaluation Account is prepared:

• Increases in asset values and decreases in liabilities are CREDITED to the Revaluation Account (gains).
• Decreases in asset values, increases in liabilities, and newly discovered/unrecorded liabilities are DEBITED to the Revaluation Account (losses).

The resulting profit or loss is transferred to the capital accounts of ALL the partners, including the deceased one, in their OLD profit-sharing ratio — never the gaining ratio, and never only among the continuing partners — because this gain or loss relates to the period before the death, when all partners (including the one who has now died) held their old shares. …