Question

Why should assets and liabilities be revalued on the reconstitution of a partnership firm? Explain briefly giving examples.

Answer 1

Assets and Liabilities are to be reassessed at the time of reconstitution of partnership as there are chances that value of assets and liabilities as reflected in old balance sheet may have increased or decreased and consequently they might have been understated or overstated. Also, there are chances that some of the assets or liabilities might have been left unrecorded.
Say, if a new partner has been admitted in the firm, accordingly at the time of admission, we need to revalue the assets and liabilities so as they are recorded at their correct value. Also, to take into consideration any asset or liability that has been left unrecorded. Thus, revaluation account is prepared at the time of admission of partner so as to give the affect to above adjustments and any profit of loss arising out of such revaluation is distributed amongst the old partners. Similar is the case at the time of retirement or death of partner, the revaluation is carried out and any profit or loss arising out of such revaluation is distributed amongst old partners.