When a new partner is admitted, the firm's assets and liabilities are revalued to reflect their current market values. For any increase in the value of assets, the journal entry is:
Assets Account Dr
To Revaluation Account
The Assets Account is debited to record the increase in its value. This brings the asset to its current fair value in the books.
The corresponding credit goes to Revaluation Account, which accumulates all gains and losses from revaluation. The balance of Revaluation Account (profit or loss) is then transferred to the old partners' capital accounts in their old profit-sharing ratio.
For example, if Land (book value ₹2,00,000) is revalued at ₹2,50,000:
Land Account Dr 50,000
To Revaluation Account 50,000
Note that Revaluation Account and Profit and Loss Adjustment Account are two names for the same account. However, in the entry for increase in asset value, this account is credited (not debited). The asset account itself is debited to show the enhanced value.