What is the effect of revaluation of assets on partners' capital accounts?

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Increase in all partners' capital
Decrease in all partners' capital
Increase or decrease based on ownership ratio
No effect on capital accounts

Questions & Step-by-step Solutions

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Q: What is the effect of revaluation of assets on partners' capital accounts?

Solution: Revaluation of assets can lead to an increase or decrease in partners' capital accounts based on their ownership ratio in the partnership.

Steps: 7

Step 1: Understand what revaluation of assets means. It is when the value of an asset is adjusted to reflect its current market value.
Step 2: Recognize that in a partnership, each partner has a capital account that shows their share of the partnership's assets.
Step 3: Know that when assets are revalued, the total value of the partnership changes, which affects each partner's capital account.
Step 4: Determine the ownership ratio of each partner. This is the percentage of the partnership that each partner owns.
Step 5: Calculate the increase or decrease in the total value of the assets after revaluation.
Step 6: Distribute the change in asset value to each partner's capital account based on their ownership ratio.
Step 7: If the asset value increases, partners' capital accounts will increase. If it decreases, their capital accounts will decrease.

What is the effect of revaluation of assets on partners' capital accounts?

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