Question

At the time of admission of a partner when Partners' Capital Accounts are maintained following Fixed Capital Accounts Method, Unrecorded Assets or Liabilities are transferred to:

• A. Old Partners' Current Accounts
• B. Old Partners' Capital Accounts
• C. Revaluation Account
• D. Goodwill Account

Hint:

During admission of a partner: \[ \mathrm{Unrecorded\ Assets/Liabilities} \rightarrow \mathrm{Revaluation\ Account} \]

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
When a new partner is admitted, the firm's assets and liabilities are revalued to reflect their current market values.
This ensures that the old partners get the benefit (or bear the loss) of changes in value that occurred before the new partner joined.
Step 2: Detailed Explanation:
Unrecorded assets and liabilities are discoveries of value that were not previously in the books.
Regardless of whether the Capital Accounts are "Fixed" or "Fluctuating," the standard procedure for revaluation is to use a nominal account called the Revaluation Account (also known as Profit and Loss Adjustment Account).
1. Unrecorded Assets are credited to the Revaluation Account.
2. Unrecorded Liabilities are debited to the Revaluation Account.
The net profit or loss from this account is then transferred to the Old Partners' Current Accounts (under the Fixed Method).
Step 3: Final Answer:
The assets and liabilities themselves are initially recorded/adjusted through the Revaluation Account.