A revaluation account is prepared in accounting when there is a need to adjust the values of assets and liabilities to their current fair market values. This is typically done in situations where there is a change in the partnership, either due to the admission of a new partner, retirement of an existing partner, or any other circumstance that requires a reassessment of the assets and liabilities.

Here are common scenarios when a revaluation account is prepared:

Change in PSR 

Admission of a New Partner:

• When a new partner is admitted to a partnership, the existing assets and liabilities are revalued to reflect their fair market values. The revaluation account is used to record the changes in the values of assets and liabilities, and any surplus or deficit is then distributed among the existing partners based on their profit-sharing ratios.

Retirement or Resignation of a Partner:

• When a partner retires or resigns from a partnership, the assets and liabilities of the firm may need to be revalued. The revaluation account helps in adjusting the values of assets and liabilities, and any gain or loss arising from the revaluation is distributed among the remaining partners based on their profit-sharing ratios.

In both cases, the revaluation account serves the purpose of ensuring that the partnership's balance sheet reflects the current market values of its assets and liabilities. It helps in maintaining transparency and fairness in the distribution of gains or losses among the partners.