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Question

Why there is a need for the revaluation of assets and liabilities on the admission of a partner?

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Solution

Just to avoid any future disputes it is always advisable to revalue the assets and liabilities at the time of admission of a new partner. This is done because the value of assets and liabilities may have increased or decreased and consequently their corresponding figures in the old balance sheet may either be understated or overstated.

Moreover, sometimes some assets and liabilities are left unrecorded and must be incorporated into books. Thus, in order to record the increase and decrease in the market value of the assets and liabilities, Revaluation Account is prepared and any profits or losses associated with this increase or decrease are distributed among the old partners of the firm.


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