AccountancyCBSE Class 12 · Reconstitution of a Partnership Firm – Admission of a Partner

Revaluation Account and Reserves on Admission of a Partner (Class 12)

Updated 15 October 2026 · Fact-checked

On admission, assets and liabilities are revalued through a Revaluation Account: increases in assets and decreases in liabilities are credited, decreases in assets and increases in liabilities debited. The profit or loss, along with reserves and accumulated profits or losses, belongs to the old partners and is transferred to their capital accounts in the old ratio.

Losses go on the debit side and gains on the credit side; the net result and reserves are shared by old partners only, in the old ratio.

Illustration drawn for QuestionBuddy.

Understand Revaluation Account and Reserves on Admission

Why revalue? Book values of assets and liabilities may differ from their current values. Any rise or fall happened while only the old partners owned the firm, so it must be settled among them, in their old ratio, before the new partner joins. This is done through a Revaluation Account (a nominal account).

Format.

Debit side (losses): decrease in value of assets; increase in liabilities; new or increased provisions (for example, provision for doubtful debts); unrecorded liabilities brought into the books.
Credit side (gains): increase in value of assets; decrease in liabilities; unrecorded assets brought into the books.
Balance: profit (credit balance) or loss (debit balance), transferred to old partners' capital accounts in the old ratio.

Typical entries. Revaluation A/c Dr; To Stock A/c (fall in stock). Building A/c Dr; To Revaluation A/c (rise in building). Revaluation A/c Dr; To Old Partners' Capital A/cs (profit).

Reserves and accumulated profits or losses. General Reserve, Reserve Fund and the credit balance of Profit and Loss are credited to old partners in the old ratio. Accumulated losses and deferred revenue expenditure (such as Advertisement Suspense) are debited to them in the old ratio.

Workmen Compensation Reserve (WCR).

No claim: the whole reserve goes to old partners.
Claim less than the reserve: claim becomes a liability; the surplus goes to old partners.
Claim more than the reserve: the whole reserve is used and the excess is debited to the Revaluation Account.

Investment Fluctuation Reserve (IFR).

Market value at or above book value: whole IFR goes to old partners.
Market value below book value: the fall is met from IFR first; any balance goes to old partners; if the fall exceeds IFR, the excess is debited to the Revaluation Account.

When partners decide not to alter book values. The net revaluation result is adjusted with one entry: gaining partners (including the new partner) are debited and sacrificing partners credited, in proportion to their gain or sacrifice.

Revaluation Account and Reserves on Admission: key facts

Revaluation result: Gains (asset increases + liability decreases + unrecorded assets) − Losses (asset decreases + liability increases + new provisions + unrecorded liabilities); Shared in the old ratio.
Check: Revaluation profit = Revalued net assets − Book net assets; A quick way to verify the account.
WCR: Surplus = Reserve − Claim (to old partners); if Claim > Reserve, excess to Revaluation Dr
IFR: Fall = Book value − Market value; balance IFR = IFR − Fall (to old partners); if Fall > IFR, excess to Revaluation Dr
Without altering book values: Each partner: share of gain in old ratio − share in new ratio; Positive: credit; negative: debit.

How to answer Revaluation Account and Reserves on Admission questions

Admission questions with a balance sheet usually ask for the Revaluation Account, partners' capital accounts and the new balance sheet. Use this order.

1List every revaluation item with + (gain) or − (loss); include provisions and unrecorded items.
2Handle WCR and IFR: only the excess claim or excess fall goes to the Revaluation Account.
3Prepare the Revaluation Account and find the profit or loss; share it in the old ratio.
4Transfer reserves and accumulated profits (credit) and accumulated losses (debit) in the old ratio.
5Record the new partner's capital and goodwill premium, then balance capital accounts.
6Check: revaluation profit = revalued net assets − book net assets.

Revaluation Account and Reserves on Admission in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Revaluation gain belongs to the old partners

Suppose Kabir and Leela have run a hardware shop for twelve years from a building bought for ₹10,00,000; the area has since become a busy market and the building is now worth ₹13,00,000. They share profits equally. Their nephew Manav joins as a partner next month.

Should Manav share the ₹3,00,000 rise in value? Show the treatment.

Try it first, then show the solutionSolution

The rise happened before Manav joined, while only Kabir and Leela bore the risk.
Building A/c Dr 3,00,000 To Revaluation A/c 3,00,000.
Revaluation profit 3,00,000 shared in the old ratio 1 : 1: ₹1,50,000 each.

Answer: No. The building is revalued to ₹13,00,000 before admission, and the gain of ₹3,00,000 is credited to Kabir and Leela, ₹1,50,000 each. Manav shares only changes in value that happen after he joins.

Memory hook: Past gains, old partners, old ratio.

Tricks to remember Revaluation Account and Reserves on Admission

Short memory aids. Say each one aloud once, then use it on a question the same day.

DALI on the debit side
Decrease in Assets, Liabilities Increase (plus new provisions, unrecorded liabilities): Revaluation Dr.
Use it when: Deciding the side of each item.
Old events, old ratio
Revaluation result, reserves and accumulated profits or losses all go in the old ratio.
Use it when: Distribution step.
Reserve first, Revaluation for the rest
WCR pays the claim and IFR absorbs the fall; only the excess hits the Revaluation Account.
Use it when: WCR and IFR questions.

Revaluation Account and Reserves on Admission: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Side of an appreciation · 1 mark · MCQBoard level

On the admission of a partner, an increase in the value of land is:
(a) debited to the Revaluation Account
(b) credited to the Revaluation Account
(c) credited to the new partner's capital account
(d) not recorded

Try it first, then show the solutionSolution

A rise in an asset is a gain to the old partners; gains are credited.

Answer: (b) credited to the Revaluation Account

Example 2: Revaluation profit and its distribution · 3 marks · Short answerBoard level

A and B share profits 3 : 2. On C's admission: building (₹5,00,000) is appreciated by 10%; stock (₹1,00,000) is reduced by 5%; the provision for doubtful debts on debtors of ₹50,000 is raised from ₹2,000 to 5%; an unrecorded creditor of ₹3,000 is to be recorded. Find the revaluation profit and each partner's share. (3 marks)

Try it first, then show the solutionSolution

Gain: building +50,000.
Losses: stock 5,000; extra provision 2,500 − 2,000 = 500; creditor 3,000.
Profit = 50,000 − 8,500 = ₹41,500; A 3/5 = ₹24,900, B 2/5 = ₹16,600.

Answer: Revaluation profit ₹41,500: A ₹24,900, B ₹16,600 (credited to their capital accounts).

Example 3: Workmen Compensation Reserve, two cases · 4 marks · Short answerHarder board level

P and Q share profits equally. Their balance sheet shows a Workmen Compensation Reserve of ₹60,000. R is admitted. Show the treatment if the claim on account of workmen compensation is (i) ₹40,000; (ii) ₹75,000. (4 marks)

Try it first, then show the solutionSolution

(i) WCR A/c Dr 60,000 To Provision for Workmen Compensation Claim 40,000; To P's Capital 10,000; To Q's Capital 10,000.
(ii) WCR A/c Dr 60,000; Revaluation A/c Dr 15,000; To Provision for Workmen Compensation Claim 75,000.
In case (ii) the ₹15,000 loss is shared by P and Q through the Revaluation Account.

Answer: (i) Surplus ₹20,000 credited ₹10,000 each. (ii) Excess claim ₹15,000 debited to the Revaluation Account.

Example 4: Investment Fluctuation Reserve, two cases · 4 marks · Short answerHarder board level

X and Y have investments at a book value of ₹2,00,000 and an Investment Fluctuation Reserve of ₹30,000. Z is admitted. Explain the treatment if the market value of investments is (i) ₹1,85,000; (ii) ₹1,60,000. (4 marks)

Try it first, then show the solutionSolution

(i) Fall = 15,000, met from IFR: IFR A/c Dr 15,000 To Investments A/c 15,000; balance IFR 15,000 to X and Y in the old ratio.
(ii) Fall = 40,000: IFR A/c Dr 30,000; Revaluation A/c Dr 10,000; To Investments A/c 40,000.
No IFR remains in case (ii).

Answer: (i) Investments reduced by ₹15,000 from IFR; ₹15,000 to old partners. (ii) IFR fully used; ₹10,000 debited to the Revaluation Account.

Example 5: Revaluation, reserves and adjusted capitals · 6 marks · Long answerHOTS / competency

A and B share profits 3 : 2 with capitals of ₹3,00,000 and ₹2,00,000. Their balance sheet shows General Reserve ₹40,000 and a debit balance of Profit and Loss ₹10,000. On C's admission: building (₹4,00,000) is revalued at ₹4,60,000; machinery (₹2,00,000) is depreciated by 10%; creditors (₹80,000) include ₹5,000 not payable; an unrecorded investment of ₹12,000 is brought into the books; outstanding rent of ₹3,000 is to be provided. Prepare the Revaluation Account (in summary) and find A's and B's capitals before C's capital is brought in. (6 marks)

Try it first, then show the solutionSolution

Gains: building 60,000; creditors 5,000; investment 12,000 = 77,000.
Losses: machinery 20,000; outstanding rent 3,000 = 23,000.
Revaluation profit = ₹54,000: A 32,400, B 21,600.
General Reserve 40,000: A 24,000, B 16,000. P&L debit 10,000: A 6,000, B 4,000.
A = 3,00,000 + 32,400 + 24,000 − 6,000 = ₹3,50,400; B = 2,00,000 + 21,600 + 16,000 − 4,000 = ₹2,33,600.

Answer: Revaluation profit ₹54,000 (A 32,400; B 21,600). Adjusted capitals: A ₹3,50,400, B ₹2,33,600.

Example 6: Why the old ratio? · 1 mark · Assertion-reasonHOTS / competency

Assertion (A): The profit on revaluation at the time of admission is shared by the old partners in their old profit sharing ratio.
Reason (R): The change in values relates to the period before the new partner was admitted.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.

Try it first, then show the solutionSolution

Values changed while only the old partners owned the firm; R explains A.

Answer: (a) Both A and R are true, and R is the correct explanation of A.

Where students lose marks in Revaluation Account and Reserves on Admission

The slips examiners see most often, and what to write instead.

Mistake: Sharing revaluation profit in the new ratio
Thinking the new partner is now part of the firm.
Wrong working
Revaluation profit 54,000 shared 2 : 1 : 1 among A, B and C.
Right working
Shared 3 : 2 between A and B only.
Do this: Revaluation is settled before admission.
Usually costs: 1-2 marks.
Mistake: Debiting the whole WCR claim to Revaluation
Ignoring the reserve.
Wrong working
Revaluation A/c Dr 75,000 To Provision for Claim 75,000
Right working
WCR Dr 60,000; Revaluation Dr 15,000; To Provision for Claim 75,000
Do this: Use the reserve first.
Usually costs: 1-2 marks.
Mistake: Taking the whole new provision as a loss
Forgetting the existing provision.
Wrong working
Provision 5% of 50,000 = 2,500 debited to Revaluation.
Right working
Only the increase, 2,500 − 2,000 = 500, is debited.
Do this: Revalue the change, not the total.
Usually costs: 1 mark.
Mistake: Transferring reserves through the Revaluation Account
Mixing reserves with revaluation.
Wrong working
General Reserve credited to Revaluation A/c.
Right working
General Reserve A/c Dr To old partners' capitals (old ratio).
Do this: Reserves go directly to capitals; only excess WCR claim or excess IFR fall touches Revaluation.
Usually costs: 1 mark.

Exam tips

Write the Revaluation Account in T-form with clear particulars; show calculations of percentages in brackets.
Always check the account with 'revalued net assets − book net assets'.
If the question says 'without altering the book values', pass only the single adjustment entry.
This topic is a 3- or 4-mark question on its own and the core of the 6-mark admission question.

Practice questions on Revaluation Account and Reserves on Admission

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
An unrecorded liability, brought into the books at the time of admission, is:
(a) credited to the Revaluation Account
(b) debited to the Revaluation Account
(c) debited to old partners' capital accounts
(d) credited to the new partner's capital account
Hint
Is it a gain or a loss for the old partners?
Answer
(b) debited to the Revaluation Account
Q2 · 1 mark · MCQBoard level
General Reserve appearing in the balance sheet at the time of admission is transferred to:
(a) all partners' capitals in the new ratio
(b) old partners' capitals in the old ratio
(c) old partners' capitals in the sacrificing ratio
(d) the Revaluation Account
Hint
It was built before admission.
Answer
(b) old partners' capitals in the old ratio
Q3 · 3 marks · Short answerBoard level
A and B share profits 3 : 2. On C's admission, stock (₹80,000) is reduced by 10%, furniture is appreciated by ₹4,000, and a provision for doubtful debts of ₹1,000 is created. Find the revaluation result and its distribution. (3 marks)
Hint
Losses 8,000 + 1,000; gain 4,000.
Answer
Loss = 8,000 + 1,000 − 4,000 = ₹5,000, debited A ₹3,000, B ₹2,000.
Q4 · 3 marks · Short answerHarder board level
The balance sheet shows a Workmen Compensation Reserve of ₹30,000. On admission, the claim is ₹36,000. Pass the journal entry. (3 marks)
Hint
Excess of claim.
Answer
WCR A/c Dr 30,000; Revaluation A/c Dr 6,000; To Provision for Workmen Compensation Claim A/c 36,000.
Q5 · 3 marks · Short answerHarder board level
M and N share equally. Investments (book value ₹1,50,000) have a market value of ₹1,40,000, and there is an Investment Fluctuation Reserve of ₹20,000. Pass the entries on O's admission. (3 marks)
Hint
Fall ₹10,000.
Answer
IFR A/c Dr 20,000 To Investments A/c 10,000; To M's Capital A/c 5,000; To N's Capital A/c 5,000.
Q6 · 3 marks · Short answerHarder board level
A and B share profits 5 : 3. On C's admission, revaluation shows gains of ₹26,000 and losses of ₹10,000. Pass the entry for the revaluation result. (3 marks)
Hint
Net 16,000 profit.
Answer
Revaluation A/c Dr 16,000 To A's Capital A/c 10,000; To B's Capital A/c 6,000.
Q7 · 3 marks · Short answerHarder board level
X and Y share profits 2 : 1. Their balance sheet shows Advertisement Suspense (deferred revenue expenditure) of ₹24,000. Pass the entry on Z's admission. (3 marks)
Hint
An accumulated loss.
Answer
X's Capital A/c Dr 16,000; Y's Capital A/c Dr 8,000; To Advertisement Suspense A/c 24,000.
Q8 · 1 mark · Assertion-reasonHarder board level
Assertion (A): The new partner is credited with his share of revaluation profit.
Reason (R): The Revaluation Account records changes in values up to the date of admission.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Whose period is it?
Answer
(d) A is false, but R is true.
Q9 · 4 marks · Short answerHOTS / competency
A and B share profits 3 : 2. C is admitted and the new ratio is 5 : 3 : 2. Revaluation shows a net gain of ₹30,000, but the partners decide not to alter the book values of assets and liabilities. Pass the single adjustment entry. (4 marks)
Hint
Old-ratio share minus new-ratio share.
Answer
Old ratio: A 18,000, B 12,000. New ratio: A 15,000, B 9,000, C 6,000. Net: A +3,000, B +3,000, C −6,000. C's Capital A/c Dr 6,000 To A's Capital A/c 3,000; To B's Capital A/c 3,000.
Q10 · 3 marks · Short answerHOTS / competency
A and B share profits 3 : 1. On C's admission, A's capital was credited with ₹12,000 as his share of revaluation profit. The only revaluation items were an appreciation of building by 20% and a fall in stock of ₹4,000. Find B's share and the book value of the building. (3 marks)
Hint
Total profit first.
Answer
Total profit = 12,000 × 4/3 = ₹16,000; B's share ₹4,000. Building appreciation = 16,000 + 4,000 = ₹20,000 = 20% of book value, so book value = ₹1,00,000.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.In which ratio is revaluation profit shared on admission?Show answer
The old profit sharing ratio.
2.Which side of the Revaluation Account shows a decrease in liabilities?Show answer
Credit side.
3.WCR ₹50,000, claim ₹20,000: what happens to ₹30,000?Show answer
Credited to old partners in the old ratio.
4.Investments fall by ₹25,000; IFR is ₹15,000. What is debited to Revaluation?Show answer
₹10,000.
5.Where does Advertisement Suspense go on admission?Show answer
Debited to old partners' capitals in the old ratio.

Revaluation Account and Reserves on Admission: frequently asked questions

What is a Revaluation Account in Class 12?

A nominal account prepared on reconstitution to record changes in the values of assets and liabilities; its profit or loss is shared by the old partners in the old ratio.

How is Workmen Compensation Reserve treated on admission?

The claim is met from the reserve; any surplus goes to old partners in the old ratio, and any excess claim is debited to the Revaluation Account.

Is a Revaluation Account the same as a Realisation Account?

No. Revaluation is used on reconstitution when the firm continues; realisation is used on dissolution when assets are sold and liabilities paid.

What does 'without altering book values' mean?

Assets and liabilities stay at book values; the net revaluation result is adjusted by one entry debiting gaining partners and crediting sacrificing partners.