Question

Assertion (A): At the time of admission, assets are revalued and liabilities reassessed so that the incoming partner is not put to an advantage or disadvantage because of change in values.

Reason (R): Assets and liabilities at the time of admission are revalued/reassessed because increase or decrease in their values is for the period before admission of new partner and hence the gain or loss on revaluation is distributed in old partners in old ratio.

In the context of the above two statements, which of the following is correct?

Options

• Both (A) and (R) are correct, and (R) is the correct reason for (A).

• Both (A) and (R) are correct, but (R) is not the correct reason for (A).

• Only (R) is correct.

• Both (A) and (R) are wrong.

Answer 1

Both (A) and (R) are correct, and (R) is the correct reason for (A).

Explanation:

Both Assertion (A) and Reason (R) are true and describe the core logic behind preparing a Revaluation Account during the admission of a partner. Assertion (A) correctly states the purpose: to ensure fairness, preventing the new partner from benefiting from or being penalized by value changes that occurred before they joined the firm. Reason (R) provides the exact justification for this process. The gains or losses arising from the revaluation belong exclusively to the pre-existing period and thus must be allocated solely to the old partners in their old profit-sharing ratio. Reason (R) perfectly explains the principle stated in Assertion (A).