What is Revaluation Account?
A Revaluation Account is outlined to determine net profit or loss on revaluation of assets and liabilities and including those items that are unrecorded into books. Revaluation account is prepared at the time of admission of a new partner or in case of death or retirement of a partner. The Revaluation profit or loss is transferred to the capital a/c of all the partners comprising deceased or retiring partners in their old profit sharing ratio (PSR).
What is Revaluation of Assets and Reassessment of Liabilities?
During the admission of a new partner, it is always better to determine whether the assets of the enterprise are mentioned in the books at their current values. If the assets are overstated or understated, these are to be revalued. Few points that explain why revaluation of assets and reassessment of liabilities are important.
- Reassessment of liabilities is done so that the liabilities are recorded in the books at their appropriate values.
- Now and then, there may also be some assets and liabilities of the enterprise that stay unnoticed and unrecorded. These also have to be added into the books of the enterprise. For this cause the enterprise has to outline the Revaluation Account.
- The profit or loss on revaluation of each asset and liability is moved to this A/c and its balance is transferred to the capital account of the old partners in their old profit sharing ratio.
- To put it in other words, the revaluation A/c is credited with the rise in the value of each asset and decrease in its liabilities; it is a profit and is debited with a decrease in the merit of assets and increase in its liabilities is debited to revaluation A/c, it is a loss. Correspondingly, unrecorded liabilities are debited and unrecorded assets are credited to the revaluation account.
- If the revaluation A/c finally displays a credit (cr.) balance then, it stipulates net profit and if there is a debit balance then it stipulates net loss. Which will be later transferred to the capital account of the old partners in the old ratio.
The above mentioned is the concept that is explained in detail about the Revaluation of Assets and Reassessment of Liabilities for the Class 12 Commerce students. To know more, stay tuned to BYJU’S.