Partnership accounts

Sudha Reddy

Which illustration are you referring to

Thread Starter

Admission of a new partner Illustration 2 & Module practical question 1

Sudha Reddy

Memorandum Revaluation Account is prepared when at the time of admission/retirement the partnership firm does not want to change the values of assets and liabilities in the New Balance Sheet but wants to give the effect of revaluation through Partners' Capital Accounts. Generally, at the time of admission/retirement the partnership firm prepares Revaluation Account, but in this case the revaluation effect is not given in Balance Sheet but just in the Partners' Capital Accounts.

Sudha Reddy

This account has two parts and the first part is similar to the Revaluation A/c. Revaluation profit (loss) calculated is credited (debited) to old partners in their old profit sharing ratio. In the second part, the entries made in the first part are reversed and profit (loss) of first part turns into loss (profit) in the second part. This loss (profit) is debited (credited) to all partners including the new partner in their new profit sharing ratio.

Thread Starter

But in second part Why including new partner ??

Sudha Reddy

The reason behind this is that the reverse entries are done to restore the old figures of assets and liabilities. It is done at the admission of the partner so that the new partner will also participate in restoring the old figures.