give any two reasons for the prepartion of revaluation account on the admission of a new parter.
The following are the two reasons for preparation of Revaluation Account at the time of Admission of a New Partner-
(i) At the time of admission of a new partner, it becomes very necessary to revalue the assets and liabilities of a partnership firm for ascertaining its true and fair values. 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.
(ii) It may be possible that some of the assets and liabilities are left unrecorded. 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.
1)the value of assets and liablities payable need to be brought to their correct values so that the incoming partner is not put to an advantage or disadvantage
for this purpose a revaluation a/c is opened in the books of the firm. the value of assets and liablities not recorded in the books is accounted through the revaluation a/c..the profits and losses arising therefrom is adjusted in the old partners' capital a/c in old profit sharing ratio