on admission of a new partner increase in value of assets is debited to :profit and loss account account or partners capital account

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profit and loss adjustment account or revaluation account

Answer

Admission of a New Partner and Increase in Value of Assets

When a new partner is admitted to a partnership, it is common for the value of the assets to increase. This increase in value can be attributed to the new partner’s contribution or to the revaluation of existing assets.

Debiting Profit and Loss Account

When there is an increase in the value of assets due to the admission of a new partner, it is not appropriate to debit the profit and loss account. This is because the profit and loss account is used to record the revenue and expenses of the business. It is not used to record changes in the value of assets.

Debiting Partners’ Capital Account

The correct way to record the increase in the value of assets is to debit the partners’ capital account. This is because the capital account represents the partner’s investment in the business. When there is an increase in the value of assets, the partner’s investment in the business also increases.

Debiting the partners’ capital account ensures that the increase in the value of assets is reflected in the financial statements of the partnership. It also ensures that the partners’ capital accounts are accurately recorded and can be used for future calculations of profit sharing, withdrawals, and other transactions.

Conclusion

It is important to understand the proper accounting treatment for the admission of a new partner and the increase in the value of assets. Debiting the profit and loss account is not appropriate as it does not reflect the true nature of the transaction. Debiting the partners’ capital account ensures that the financial statements accurately reflect the changes in the partnership and the impact on each partner’s investment in the business.

Similar Class 12 Doubts

Contingency reserve, profit and loss account (credit) balance and deferred revenue expenditure account are credited to capital accounts of old partner in old ratio at the time of admission of new partners.

On admission of a new partner increase in assets is debited to which account

General Reserve at the time of admission of a partner is transferred to ____________ .

In chapter Admission of new partner of accountancy in topic adjustment of capital how do we get to know that we have to take capital A/C balance for distribution or we have to take capital of partners given in balance sheet

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