A LevelAccountingCambridge (CIE)Revision NotesFinancial AccountingPreparation of Financial Statements for PartnershipsRevaluation Account

Revaluation Account (Cambridge (CIE) A Level Accounting): Revision Note

Exam code: 9706

Written by: Dan Finlay

Reviewed by: Lucy Kirkham

Updated on 27 March 2026

Revaluation account

What is a revaluation account?

A revaluation account is a temporary account
It is used to calculate the net profit or loss when adjusting the book values of assets and liabilities to their current fair values
It is used when a partnership continues to operate but its structure changes
- Such as the introduction of a new partner or the retirement of an existing partner

Why is a revaluation account used?

It is important that an accurate current value of a business is found before making any changes to the structure of the partnership
The assets might have increased in value since their purchase
- The current partners should benefit from this increase before changing the structure
Revaluing assets and liabilities, before changing the structure of the partnership, ensure that
- new partners do not unfairly benefit from past gains
- new partners are not unfairly penalised for past losses

How do I prepare a revaluation account?

STEP 1
Work out the increase or decrease of each asset
- Increases are on the credit side
- Decreases are on the debit side
STEP 2
Work out the increase or decrease of each liability
- Increases are on the debit side
- Decreases are on the credit side
STEP 3
Find the balancing figure
- It is a net profit on revaluation if it is on the debit side
- It is a net loss on revaluation if it is on the credit side
STEP 4
Share the net profit or loss on revaluation between the partners' capital accounts using the old profit-sharing ratio

Revaluation account table showing assets, liabilities, and capital accounts with columns for increases, decreases, and total profit or loss. — **Layout of a revaluation account**

Examiner Tips and Tricks

If you struggle to remember what goes on which side, then consider the other side of the transaction.

For example, if an asset increases in value, then the asset account will have a debit entry to increase its value. Therefore, the revaluation account will have a credit entry.

Questions do not tend to ask you to prepare the revaluation account, they mainly ask you to find the effects on the capital accounts. However, it is helpful to sketch a quick revaluation account to help with this calculation.

Worked Example

Ameena and Bilal are in partnership and share profits and losses in the ratio 7:4 respectively.

The following balances were available on 31 December 2025.

	$
Vehicles at cost	30 000
Accumulated depreciation of vehicles	12 500
Trade receivables	62 500
Inventory	11 000
Capital accounts
Ameena	60 000
Bilal	35 000

Ameena and Bilal admit a new partner, Carry, on 1 January 2026. Profits and losses are to be shared between Ameena, Bilal and Carry in the ratio 4:2:1 respectively.

They agree the following valuations:

	$
Vehicles	20 000
Inventory	9 000

They also agreed to write off trade receivables' balances totalling $6 000 as irrecoverable debts.

Find the balance on Ameena's capital account after the revaluation.

Answer:

Calculate the net book value of the vehicles before the revaluation

$30 000 - $12 500 = $17 500

Calculate the increase in value of the vehicles

$20 000 - $17 500 = $2 500

Calculate the decrease in inventory

$11 000 - $9 000 = $2 000

Work out the net loss on revaluation

	$
Increase in vehicles	2 500
Decrease in inventory	(2 000)
Decrease in trade receivables	(6 000)
Loss on revaluation	(5 500)

Find the share of the loss for Ameena using the old ratio

$$ 5 500 \times \frac{7}{11} = $ 3 500$

Note that the revaluation account would look like:

Revaluation account

		$			$
2026			2026
Jan 1	Inventory	2 000	Jan 1	Vehicles	2 500
	Trade receivables	6 000		Capital - Ameena (loss on revaluation)	3 500
				Capital - Bilal (loss on revaluation)	2 000
		8 000			8 000

Calculate Ameena's capital account balance

	$
Increase in vehicles	2 500
Balance on 31 December 2025	60 000
Loss on revaluation	(3 500)
Balance on 1 January 2026	56 500

$56 500

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