Question

Profit or loss on revaluation is transferred to all partners' capital accounts in case of retirement of a partner. [State True/False]

Hint:

Contrast this with Admission: On admission of a new partner, the revaluation profit/loss is shared ONLY among the \textit{old} partners, because the new partner has no right over past accumulated profits/losses.

Answer 1

Step 1: Understanding the Concept:
When a partner retires, the firm's assets and liabilities are revalued to reflect their true current market values. This is done to ensure the retiring partner gets their rightful share of any unrecorded gains or bears their share of unrecorded losses that accumulated during their time in the firm.

Step 2: Detailed Explanation:
Because the changes in the values of assets and liabilities occurred while all partners (including the retiring one) were running the business together, the resulting profit or loss on revaluation belongs to all of them. Therefore, the balance of the Revaluation Account is transferred to the Capital Accounts of all partners (continuing partners + retiring partner) in their old profit-sharing ratio.

Step 3: Final Answer:
The statement is True.