The profit or loss on revaluation of assets and liabilities are distributed in

When assets and liabilities are revalued (usually at the time of admission, retirement, or death of a partner), the resulting profit or loss represents the change in value that has accumulated over the past period when the old partners were managing the business.

Since this gain or loss has accrued during the period when partners were sharing profits in their old ratio, it rightfully belongs to them in the same proportion. The old partners have contributed to building (or losing) this value through their past efforts and decisions.

Example: If partners A and B share profits in the ratio 3:2 and machinery originally recorded at ₹1,00,000 is revalued to ₹1,20,000, the profit of ₹20,000 will be distributed to A and B in their old ratio 3:2 (i.e., A gets ₹12,000 and B gets ₹8,000).

If a new partner C is being admitted after this revaluation, C should not share in this ₹20,000 gain because it arose before C joined the firm.

The Revaluation Account is prepared where:

• Increases in asset values and decreases in liability values → Credit side (Profit)
• Decreases in asset values and increases in liability values → Debit side (Loss)

The net profit or loss is then transferred to the old partners' capital accounts in their old profit-sharing ratio.