— Kishore V, SME and ACW at Edumarz
- When a new partner enters the business, it’s critical to revalue the firm’s assets and liabilities to determine its actual and fair worth.
- This is done because the value of assets and liabilities may have grown or reduced, causing the figures on the old balance sheet to be underestimated or inflated.
- Furthermore, it is likely that certain assets and liabilities are not documented.
- Thus, a revaluation account is formed to record the rise and reduction in the market value of assets and liabilities, and any profit or losses related to this increase or decrease are split among the firm’s old partners.