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Which account will be prepared at the time of admission of a new partner for giving effect of revaluation of assets and liabilities without changing the value of assets and liabilities of old Balances Sheet?
- a)P & L Adjustment A/c
- b)Revaluation A/c
- c)Memorandum Revaluation A/c
- d)Realisation A/c
Correct answer is option 'C'. Can you explain this answer?
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Which account will be prepared at the time of admission of a new partn...
Because memorandum revaluation account is prepared inorder to not to show the effects of revaluation of assests and liabilities.
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Which account will be prepared at the time of admission of a new partn...
Understanding Memorandum Revaluation Account
When a new partner is admitted into a partnership, it is essential to revalue the assets and liabilities to reflect their current market values. However, this process must be executed without altering the old balances in the Balance Sheet. The appropriate account for this situation is the Memorandum Revaluation Account.
Purpose of Memorandum Revaluation A/c
- The Memorandum Revaluation Account is used to record the adjustments in the values of assets and liabilities as per the current market conditions.
- This account does not affect the existing Balance Sheet directly; instead, it serves as a means to document the changes in values for the sake of the new partner's admission.
Key Features of Memorandum Revaluation A/c
- Temporary Account: It is a temporary account used solely for the purpose of revaluation during the admission of a new partner.
- No Impact on Capital Accounts: The revaluation adjustments are reflected in the Memorandum Revaluation Account, ensuring that the original capital accounts of existing partners remain unchanged.
- Distribution of Gains/Losses: Any gains or losses arising from the revaluation are typically shared between the old partners based on their existing profit-sharing ratio.
Conclusion
Using the Memorandum Revaluation Account allows the partnership to maintain the integrity of the Balance Sheet while recognizing the need to adjust asset and liability values. This ensures that both old and new partners have a clear understanding of the financial standing of the partnership at the time of admission.
When a new partner is admitted into a partnership, it is essential to revalue the assets and liabilities to reflect their current market values. However, this process must be executed without altering the old balances in the Balance Sheet. The appropriate account for this situation is the Memorandum Revaluation Account.
Purpose of Memorandum Revaluation A/c
- The Memorandum Revaluation Account is used to record the adjustments in the values of assets and liabilities as per the current market conditions.
- This account does not affect the existing Balance Sheet directly; instead, it serves as a means to document the changes in values for the sake of the new partner's admission.
Key Features of Memorandum Revaluation A/c
- Temporary Account: It is a temporary account used solely for the purpose of revaluation during the admission of a new partner.
- No Impact on Capital Accounts: The revaluation adjustments are reflected in the Memorandum Revaluation Account, ensuring that the original capital accounts of existing partners remain unchanged.
- Distribution of Gains/Losses: Any gains or losses arising from the revaluation are typically shared between the old partners based on their existing profit-sharing ratio.
Conclusion
Using the Memorandum Revaluation Account allows the partnership to maintain the integrity of the Balance Sheet while recognizing the need to adjust asset and liability values. This ensures that both old and new partners have a clear understanding of the financial standing of the partnership at the time of admission.
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Which account will be prepared at the time of admission of a new partner for giving effect of revaluation of assets and liabilities without changing the value of assets and liabilities of old Balances Sheet?a)P & L Adjustment A/cb)Revaluation A/cc)Memorandum Revaluation A/cd)Realisation A/cCorrect answer is option 'C'. Can you explain this answer?
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