p&l account is prepared on historic cost concept and present value is not taken for consideration. but when a partner is admitted old partners need to show through revaluation account the assets and liability at present value. u may undestand it by an example:-
suppose a and b are partners. before 20 years they started business with capital of rs. one lakh each and bought a shop for rs. one lakh. the shop is being shown for 20 years in balance sheet at historic cost of one lakh minus depreciation. its balance sheet value now after dep. is 50000.
but its present value is one crore . if revaluation a/c is not prepared and difference in the value of rs. 9950000 is not distributed by a and b and gave admission to c for equal share . c , if takes retirement on the next day, he is eligible to get back his capital as well as one third share of difference in value of shop rs 9950000. the old partners can't stop him doing so as per law and will feel cheated. to prevent from such cheating it is necessary to prepate revaluation sccount.
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