Reconstitution Of Partnership

The Revaluation Account is prepared whenever the partnership is reconstituted due to admission, retirement or death. The purpose is to record the change in values of assets or liabilities so that partners are fairly compensated. If an asset increases in value, the account is credited; if it decreases, the account is debited. Similarly, a decrease in liabilities is credited and an increase is debited. After adjustments, the profit or loss from revaluation is transferred to old partners' capital accounts in their old ratio. This ensures that only those partners who contributed to past profits bear the gain or loss from value changes.