Q.A and B were partners in a firm. Their profit sharing ratio was 2:1. The balance sheet of the firm for the year ending 31st March, 2020 is as follows: Liabilities | Amount (₹) | Assets | Amount (₹)
Bills Payables | 5,000 | Cash in hand | 5,000
Sundry creditors | 29,000 | Cash at bank | 20,000
Outstanding Expenses | 1,000 | Sundry debtors | 30,000
Capital Accounts: A 90,000, B 75,000 | 1,65,000 | Inventory | 20,000
| | Plant | 50,000
| | Building | 75,000
Total | 2,00,000 | Total | 2,00,000 C was admitted as a new partner on the following terms:

1. C brought ₹50,000 as capital and ₹30,000 as goodwill for 1/4th share in the profits of the firm.
2. Inventory is to be increased by ₹2,000.
3. Provision for doubtful debts will be made on debtors @5%.
4. ₹500 of creditors were not recorded.
   Prepare Revaluation Account and Partners' Capital Account of the reconstituted firm.

Showing the 12 most recent of 64 on this concept.

1. CBSE 2026Set MARCH1 markMCQ
   Q.At the time of the reconstruction of a partnership firm _____ is prepared.

   (a) Trading account

   (b) Revaluation account

   (c) Realisation account

   (d) Profit and loss appropriation account

   ›Reveal solutionSolution

   A Revaluation Account is prepared at reconstitution of a partnership firm, so the answer is (b).

   When a partnership is reconstituted (admission, retirement, death or change in ratio) the firm keeps running; only the values of its assets and liabilities are re-stated to their fair values. These changes are recorded in the Revaluation Account, and its profit or loss is shared among the old partners in the old r …

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2. CBSE 2026Set MARCH1 markMCQ
   Q.Profit or loss of revaluation account is transferred to _____ account in _____ ratio.

   (a) Old partner, equal

   (b) All partners, new profit-loss sharing ratio

   (c) Old partners, sacrificing ratio

   (d) Old partners, old ratio

   ›Reveal solutionSolution

   Profit or loss of the Revaluation Account is transferred to the old partners in the old ratio, so the answer is (d).

   The revaluation of assets and liabilities reflects value changes that accrued while only the old partners were carrying on the business. Therefore the balancing profit or loss of the Revaluation Account is credited or debited t …

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3. CBSE 2026Set MARCH1 mark
   Q.Unrecorded asset is ______ to revaluation account.

   ›Reveal solutionSolution

   An unrecorded asset is credited to the Revaluation Account.

   The Revaluation (Profit and Loss Adjustment) Account records the effect of re-valuing assets and liabilities when a firm is reconstituted (admission, retirement or death). By convention:

   Item	Treatment in Revaluation A/c
   Increase in asset / decrease in liability / unrecorded asset	Credit (gain)
   Decrease in asset / increase in liability / unrecorded liability	Debit (loss)
   …

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4. CBSE 2026Set ANNUAL1 mark
   Q.At the time of admission of a new partner, where is the value of the unrecorded liabilities transferred?

   ›Reveal solutionSolution

   The value of unrecorded liabilities is transferred to the debit side of the Revaluation Account.

   At admission, assets and liabilities are revalued. Bringing an unrecorded (previously omitted) liability into the books increases the firm's liabilities, which is a loss; therefore it is debited to the Revaluation Account. The net result of the Revaluation Account (profit or loss) i …

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5. CBSE 2026Set ANNUAL1 mark
   Q.State whether True or False: Revaluation account is a real account.

   ›Reveal solutionSolution

   The statement is False.

   The Revaluation Account records increases and decreases in the values of assets and liabilities at the time of reconstitution and its balance (profit or loss) is transferred to the partners' capital accounts. Since it deals wit …

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6. CBSE 2026Set ANNUAL1 markMCQ
   Q.On the admission of a new partner, decrease in value of assets is debited to:

   (a) Revaluation Account

   (b) Assets Account

   (c) Old Partners Capital Account

   (d) Profit and Loss Appropriation Account

   (a) Revaluation Account

   (b) Assets Account

   (c) Old Partners Capital Account

   (d) Profit and Loss Appropriation Account

   ›Reveal solutionSolution

   A decrease in asset value on admission of a partner is debited to the Revaluation Account.

   On admission of a new partner, the firm's assets and liabilities are revalued to their current/fair values because any gain or loss on this revaluation belongs only to the OLD partners (in their old profit-sharing ratio) — the incoming partner should not share in profits/losses that relate to the period before he joined.

   To record this, a Revaluation Account (also called Profit and Loss Adjustment Account) is opened:

   • Any INCREASE in the value of an asset, or DECREASE in a liability, is credited to the Revaluation Account.
   • Any DECREASE in the value of an asset, or INCREASE in a liability, is debited to the Revaluation Account.

   So a decrease in the value of an asset is recorded as:

   Particulars	Amount
   Revaluation A/c ... Dr	xxx
   To Asset A/c	xxx
   …

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7. CBSE 2026Set ANNUAL1 mark
   Q.What is Revaluation A/c?

   ›Reveal solutionSolution

   Revaluation Account records the real (current) worth of assets/liabilities at the point a partner joins, retires, or dies, so that gains/losses accrued before that event are settled fairly among the old partners.

   Over time, the book values of a firm's assets and liabilities (recorded historically) can drift away from their true current worth — a building may have appreciated, machinery may have depreciated faster than the books show, or a provision for doubtful debts may need revising. Whenever the firm is reconstituted — i.e., a partner is admitted, retires, or dies — it becomes necessary to restate these values to their fair figures before the new partner's share or the departing partner's settlement is worked out, so that nobody unfairly gains or loses from changes that happened while the old partners alone owned the business.

   The Revaluation Account (sometimes called "Profit and Loss Adjustment Account") is the nominal account opened specifically for this purpose:

   • It is debited with any decrease in the value of assets, and any increase in the value of liabilities (or a newly discovered/unrecorded liability).
   • It is credited with any increase in the value of assets, and any decrease in the value of liabilities (or a newly discovered unrecorded asset). …

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8. CBSE 2026Set ANNUAL1 markMCQ
   Q.State the Accounting treatment for unrecorded liability on admission of a partner.

   (a) Debited to Revaluation Account

   (b) Credited to Revaluation Account

   (c) Debited to Bank Account

   (d) Debited to Cash Account

   ›Reveal solutionSolution

   An unrecorded liability found at the time of admission is debited to the Revaluation Account.

   When a new partner is admitted, the firm revalues its assets and liabilities to their current, true worth through the Revaluation Account (also called Profit and Loss Adjustment Account), so that any gain or loss arising from items existing before admission is borne only by the OLD partners in their old profit-sharing ratio — not by the incoming partner.

   An "unrecorded liability" is an actual obligation of the firm (e.g., an outstanding expense, a claim, or a bill) that was never entered in the books for some reason. When such a liability surfaces:

   • The journal entry passed is: Revaluation A/c Dr.    To Unrecorded Liability A/c …

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9. CBSE 2026Set ANNUAL1 mark
   Q.Which account is debited when there is increase in PDD on admission of a partner ?

   ›Reveal solutionSolution

   An increase in PDD on admission is debited to the Revaluation Account, since it represents an additional expected loss on debtors.

   At the time of admission of a new partner, debtors are often revalued and the Provision for Doubtful Debts (PDD) is adjusted to reflect the current, more realistic estimate of bad debts. If the NEW (required) provision is HIGHER than the existing provision, this means the firm now expects more of its debtors to turn bad — an additional anticipated loss.

   The journal entry passed is:

   Revaluation A/c Dr. (with the increase in PDD)

      To Provision for Doubtful Debts A/c

   …

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10. CBSE 2025Set MARCH1 markMCQ
    Q.Revaluation account is ______ type of account.

    (a) personal

    (b) nominal

    (c) real

    (d) temporary

    ›Reveal solutionSolution

    Revaluation account records profit/loss on revaluation of assets and liabilities; being a profit-and-loss item account it is a nominal account. Correct option: (b).

    In GSEB Class-12 Commerce Accountancy:

    • The revaluation account is opened at admission/retirement to bring assets and liabilities to their current values. …

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11. CBSE 2025Set MARCH1 markMCQ
    Q.At the time of reconstruction of a partnership firm ______ is prepared.

    (a) Trading account

    (b) Revaluation account

    (c) Realisation account

    (d) Profit and loss appropriation account

    ›Reveal solutionSolution

    At reconstitution of a firm a Revaluation Account is prepared; a Realisation Account is only for dissolution. Correct option: (b).

    In GSEB Class-12 Commerce Accountancy:

    • Reconstruction/reconstitution = admission, retirement, death or change in profit-sharing ratio — the firm continues. …

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12. CBSE 2025Set MARCH1 mark
    Q.Which is the other name known for the revaluation account?

    ›Reveal solutionSolution

    Another name for the revaluation account is the Profit and Loss Adjustment Account.

    In GSEB Class-12 Commerce Accountancy (reconstitution of a firm):

    • The account opened to record increases/decreases in the value of assets and liabilities at admission/retirement is the Revaluation Account. …

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