Q.On admission of a new partner, the profit or loss on revaluation of assets and liabilities is transferred to the Capital Accounts of:

Revaluation reassesses values that existed before the new partner joined, so only the partners who owned the firm during that period — the old partners, in their old ratio — are entitled to the gain or liable for the loss.

The correct option is (b).

A Revaluation Account reassesses the value of assets and liabilities that were already on the firm's books BEFORE the new partner was admitted — any appreciation, fall in value, or unrecorded item being brought into account at this point relates entirely to a period during which the new partner had no stake in the business whatsoever. Fairness therefore requires that the resulting profit or loss belongs only to the partners who actually owned the firm during that earlier period — the OLD partners — shared in their OLD profit-sharing ratio, exactly as they would have shared any other profit or loss before the new partner arrived. …

Students who have just finished computing a NEW ratio earlier in the same problem sometimes carry that same ratio over, out of habit, to the Revaluation Account as well — the new ratio governs FUTURE profit-sharing only; the …