Transfer of Memorandum Revaluation Account (MRA) to Partner's Capital Accounts

When a partnership firm decides to revalue its assets and liabilities, any resulting increase or decrease in the value of the assets or liabilities is recorded in a special account called the Memorandum Revaluation Account (MRA). This account is not a part of the partnership's regular books of accounts but is used to keep track of the revaluation gains or losses.

At the time of revaluation, the MRA account is credited with the increase in the value of assets or liabilities and debited with the decrease in the value of assets or liabilities. The balance of the MRA account is then transferred to the capital accounts of the partners in the following manner:

1. Capital Ratio
If the partnership agreement specifies a fixed capital ratio for the partners, then the balance of the MRA account is transferred to the capital accounts of the partners in the same ratio.

2. Old Profit Sharing Ratio
If the partnership agreement specifies a fixed profit sharing ratio for the partners, but the capital ratio has changed due to the revaluation, then the balance of the MRA account is transferred to the capital accounts of the partners in the old profit sharing ratio.

3. New Profit Sharing Ratio
If the partnership agreement specifies a flexible profit sharing ratio based on the partners' capital accounts, then the balance of the MRA account is transferred to the capital accounts of the partners in the new profit sharing ratio.

4. Sacrificing Ratio
If one or more partners have sacrificed their share of profits in order to bring in a new partner or to adjust the capital accounts, then the balance of the MRA account is transferred to the capital accounts of the partners in the sacrificing ratio.

In conclusion, the transfer of the MRA account balance to the capital accounts of the partners depends on the partnership agreement and the changes in the capital and profit sharing ratios due to the revaluation.