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Question
When the balance sheet is prepared after the new partnership agreement, the assets and liabilities are recorded at ______.
Options
Historical cost
Current cost
Realisable value
Revalued figures
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Solution
When the balance sheet is prepared after the new partnership agreement, the assets and liabilities are recorded at revalued figures.
Explanation:
When a partnership firm is reconstituted due to a new partnership agreement (e.g., on admission of a new partner, retirement, or change in profit-sharing ratio), the assets and liabilities are revalued to reflect their current market value or fair value. This is done to ensure fairness among the partners and that the new partners get a fair share of the firm’s net assets based on their current worth. The revalued figures are then recorded in the new balance sheet.
