When a new partner is admitted, premises are revalued from $80 000 to $95 000. What is the double entry to record this increase in value?
Question 1 Report
When a new partner is admitted, premises are revalued from $80 000 to $95 000. What is the double entry to record this increase in value?
Answer Details
The correct answer is debit premises $15 000, credit revaluation account $15 000.
When premises are revalued upwards, the asset value increases: debit premises $15 000 (increasing the asset from $80 000 to $95 000).
The gain is credited to the revaluation account: credit revaluation account $15 000. The balance on the revaluation account is then shared between the existing partners in their old profit sharing ratio, as the gain was generated before the new partner joined.
Cash is not involved in a revaluation. It is a book adjustment to reflect the current value of the asset.
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