Partnership accounts

New Partner Joining — Revaluation of Assets

Why Revalue Assets?

When a new partner is admitted, the assets of the business are revalued to their current fair value. This ensures:

• The new partner does not benefit from gains that occurred before they joined
• The existing partners receive credit for any increase in asset values they have built up

The revaluation takes place immediately before the new partner is admitted, so only the existing partners share the revaluation gain or loss — in their old profit sharing ratio.

Revaluation Formula

Revaluation gain/(loss) = New agreed value − Book value in the accounts

• Positive result → asset has increased in value → gain
• Negative result → asset has decreased in value → loss

Double Entry

After all revaluations, the revaluation account is balanced. The net balance is transferred to the existing partners' capital accounts in their old profit sharing ratio.

Revaluation Account Format

Revaluation account
Dr                    £    |  Cr                    £
Equipment         7,500    |  Premises           70,000
Vehicles          2,100    |
Inventory           300    |
Trade receivables   100    |
Tom capital a/c  36,000    |
Jerry capital a/c 24,000   |
                  70,000   |                     70,000

Net gain = £70,000 − £10,000 = £60,000 split Tom:Jerry (3:2):

• Tom: £60,000 × 3/5 = £36,000
• Jerry: £60,000 × 2/5 = £24,000

Statement of Financial Position After Admission

After the revaluation and the new partner's capital introduction:

• All assets appear at their revalued amounts
• The new partner's cash contribution is added to the bank balance
• Capital accounts show the updated balances for all three partners