Why revaluation account is prepared?

A revaluation account is prepared when the structure of a partnership changes. This happens when a new partner is admitted, or when partners change their profit-sharing ratio.

The main reason is for fairness. The value of assets and liabilities in the books can be old. The market value today is maybe different. For example, a building purchased many years ago is now worth much more. It is not fair for a new partner to get the benefit of this past increase. This profit belongs to the old partners.

So, this account records all the increases and decreases. The final profit or loss from revaluation is shared only by the old partners in their old ratio. It makes sure the books show the true values before the new partnership starts.