Why are assets and liabilities revalued at the time of admission of a partner? By revaluing the assets and liabilities dont we violate Going concern and Cost concept??

You can get answer of your first part of the question i.e. "Why there is a need of Revaluation of Assets and Liabilities on the admission of a partner?" at the below mentioned link on page no 167 Q no 6.


Both going concern assumption and cost principle says, that fixed assets should be shown at their original cost (or purchase cost) over their life, irrespective of their market value. However, in partnership accounts at the time of admission of a new partner we revalue assets and liabilities of the firm. So there is always a doubt that is revaluation of assets and liabilities in case of admission of a partner violates our accounting principles or not.

 We know that, in case of reconstitution of a partnership firm (i.e. admission, retirement or death of a partner) business usually goes on. But, in legal terms a new partnership firm is formed in place of old partnership firm. This is the reason for revaluation of assets and liabilities. Some experts suggest that revaluation of assets and liabilities must take place at the time of admission of a new partner because a new partnership firm has come into existence. On the other hand, other experts is of the opinion that as our accounting principles and assumptions does not permit to revalue the assets and liabilities, therefore, we cannot revalue them in any case. However, ICAI have not issued any pronouncement on this matter till date. Therefore, either experts opinion is acceptable.

  • 0

The actual value of the assets and liabilities may be different from their book value as shown by the balancesheet. So Revaluationaccount is prepared at the time of admission of a new partner to record any increase/decrease in the value of assets and liabilities.The value of some assets may increase with time and some may show a decrease. Similarly some liabilities may also show a increase/decrease in the value. The Revaluation account is credited if there is an increase in the value of assets or decrease in the value of liabilities. On the other hand it is debited if there is any decrease in the value of assets or an increase in the value of of liabilities. This account is a nominal account and is sometimes also called Profit and Loss adjustment account. The profit or Loss arising due to revaluation is devided among theold partners in their old ratio.

  • 7
What are you looking for?