Question

State any two reasons for the preparation of Revaluation Account on the admission of a new partner.

Answer 1

At the time of admission of a partner, a revaluation account is prepared for the following reasons:

1. The incoming partner should not suffer any loss relating to the period prior to his admission incurred because of depreciation in the value of assets or an increase in the liabilities of the firm.

2. The old partners would not want to share any gains relating to the period prior to a partner's admission earned because of an appreciation in the assets or a reduction in the liabilities of the firm.