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Admission of a Partner — Part 2: Revaluation, Reserves, Capitals and the New Balance Sheet

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Lesson

Revaluation, reserves and the new balance sheet

Part 2 — revaluation, reserves, the capital accounts, adjusting capitals and the new balance sheet.

In this lesson you will

Prepare the revaluation account and share its result among the old partners
Distribute reserves and accumulated profits or losses on admission
Adjust capitals on the basis of the new partner's capital (or find his capital from the old capitals) and prepare the new balance sheet

Part 2 at a glance

Compare

The revaluation account

Debit (losses)

Fall in an asset
Rise in a liability
Unrecorded liability
New provision

Credit (gains)

Rise in an asset
Fall in a liability
Unrecorded asset
Provision released

Also called the profit and loss adjustment account.
Debit side (losses)	Credit side (gains)
Decrease in the value of an asset	Increase in the value of an asset
Increase in a liability	Decrease in a liability
Unrecorded liability brought in	Unrecorded asset brought in
New or higher provision (e.g. for doubtful debts)	Provision no longer needed
Balance: profit to old partners (old ratio)	Balance: loss to old partners (old ratio)