What is the effect of revaluation of assets in a partnership?
Practice Questions
1 question
Q1
What is the effect of revaluation of assets in a partnership?
Increase in capital accounts
Decrease in capital accounts
No effect on capital accounts
Increase in liabilities
Revaluation of assets leads to an increase in the capital accounts of the partners reflecting the increased value.
Questions & Step-by-step Solutions
1 item
Q
Q: What is the effect of revaluation of assets in a partnership?
Solution: Revaluation of assets leads to an increase in the capital accounts of the partners reflecting the increased value.
Steps: 5
Step 1: Understand what revaluation of assets means. It is when the value of assets owned by the partnership is updated to reflect their current market value.
Step 2: Recognize that when assets are revalued and their value increases, this affects the financial statements of the partnership.
Step 3: Know that the increase in asset value will lead to an increase in the total capital of the partnership.
Step 4: Understand that each partner's share of the capital will also increase based on their ownership percentage.
Step 5: Conclude that the capital accounts of the partners will show a higher balance, reflecting the increased value of the assets.
