Question

Why are the assets and liabilities of the firm revalued on the admission of new partner?

Hint:

Revaluing assets and liabilities ensures that the new partner’s capital contribution is based on the current market value of the firm’s assets.

Answer 1

Step 1: Purpose of revaluation.
When a new partner is admitted into the partnership, the assets and liabilities of the firm must be revalued to reflect their current market value. This ensures that the new partner’s capital contribution is fair, and that the existing partners' share in the firm is properly adjusted.
Step 2: Adjustments to capital.
The revaluation of assets and liabilities helps in adjusting the capital accounts of the existing partners to reflect any changes in the firm’s financial position. For example, if assets have appreciated, the existing partners may need to increase their capital to account for the higher value. Similarly, if liabilities have increased, the existing partners might need to reduce their capital.
Step 3: Conclusion.
Thus, revaluation ensures fairness in distributing the new partner’s share and adjusting the existing partners' share in the firm. Final Answer: \[ \boxed{\text{Assets and liabilities are revalued to ensure fairness in the admission process and adjust capital accounts.}} \]