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When balance sheet prepared after the new partnership agreement, Assets and liabilities are recorded at :
- a)Original value
- b)Revalued figure
- c)At current cost
- d)At realisable value
Correct answer is option 'B'. Can you explain this answer?
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When balance sheet prepared after the new partnership agreement, Asset...
Revaluation of Assets and Liabilities in a New Partnership Agreement
Assets and liabilities are recorded at revalued figures when preparing the balance sheet after a new partnership agreement for the following reasons:
- Recognition of the True Value: By revaluing assets and liabilities, the balance sheet reflects the true economic value of the business. This provides more accurate information for decision-making.
- Equity Consideration: Revaluing assets and liabilities ensures that the partners' equity interests are fairly represented in the financial statements. This is essential for transparency and fairness in the partnership.
- Compliance with Accounting Principles: Generally Accepted Accounting Principles (GAAP) require the recognition of assets and liabilities at their fair market values. Revaluing assets and liabilities aligns with these principles.
- Impact on Capital Accounts: Revaluing assets and liabilities can affect the partners' capital accounts, reflecting their true share of the partnership's net assets. This helps in determining the partners' ownership interests accurately.
- Consistency in Reporting: Revaluing assets and liabilities ensures consistency in financial reporting. It prevents distortions in the financial statements that may arise from outdated values of assets and liabilities.
Therefore, when a new partnership agreement is established, it is important to revalue assets and liabilities to provide a more accurate and transparent representation of the partnership's financial position. This practice ensures that the balance sheet reflects the current economic reality of the business and helps in making informed business decisions.
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When balance sheet prepared after the new partnership agreement, Assets and liabilities are recorded at :a)Original valueb)Revalued figurec)At current costd)At realisable valueCorrect answer is option 'B'. Can you explain this answer?
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