Question

On the admission of a partner, why are assets and liabilities revalued?

Answer 1

When a new partner is admitted, the actual values of the assets and liabilities may differ from those shown in the balance sheet. It is only fair that the new partner should not benefit from any increase in asset values (or decrease in liabilities), nor should he bear any loss from a decline in asset values (or increase in liabilities) that occurred before his admission. Therefore, the assets and liabilities are revalued, and the entire profit or loss resulting from the revaluation is shared between the old partners based on their previous profit-sharing ratio.