Revaluation of assets and liabilities
When a partner retires from the partnership firm, the assets and liabilities are revalued as the current value may differ from the book value. There are two ways in which the revaluation of assets and liabilities may be dealt with in the accounts.
a) Revised value of assets and liabilities are shown in the books
b) Revised value of assets and liabilities are not shown in the books
Under this method, the assets and liabilities are shown at their revised values in the books and in the balance sheet which is prepared immediately after the retirement of a partner. A revaluation account is opened to record the increase or decrease in the value of assets and liabilities. Revaluation account which is otherwise called profit and loss adjustment account is a nominal account. Revaluation account is credited with increase in value of assets and decrease in the value of liabilities. It is debited with decrease in value of assets and increase in the value of liabilities. Unrecorded assets if any are credited and unrecorded liabilities if any are debited to the revaluation account. The profit or loss arising therefrom is transferred to the capital accounts of all the partners in the old profit sharing ratio.
Following are the journal entries to be passed to record the revaluation of assets and liabilities:
*There will be either profit or loss on revaluation.
Ramya, Sara and Thara are partners sharing profits and losses in the ratio of 5:3:2.
On 1st April 2018, Thara retires and on retirement, the following adjustments are agreed upon:
(i) Increase the value of premises by ₹ 40,000.
(ii) Depreciate stock by ₹ 3,000 and machinery by ₹ 6,500.
(iii) Provide an outstanding liability of ₹ 500
Pass journal entries and prepare revaluation account.
Prabu, Ragu and Siva are partners sharing profits and losses in the ratio of 3:2:1. Prabu retires from partnership on 1st April 2017. The following adjustments are to be made:
(i) Increase the value of building by ₹ 12,000
(ii) Reduce the value of furniture by ₹ 8,500
(iii) A provision would also be made for outstanding salary for ₹ 6,500. Give journal entries and prepare revaluation account.
John, James and Raja are partners in a firm sharing profits and losses equally. Their balance sheet as on 31st March, 2019 is as follows:
Raja retired on 31st March, 2019 subject to the following conditions:
(1) Machinery is valued at ₹ 1,30,000
(ii) Value of office equipment is brought down by ₹ 2,000
(iii) Provision for doubtful debts should be increased to ₹ 3,000
(iv) Investment of ₹ 25,000 not recorded in the books is to be recorded now
Pass necessary journal entries and prepare revaluation account.
Under this method, the assets and liabilities are shown at their original values and not at the revised values in the books and in the balance sheet which is prepared immediately after the retirement of a partner. The net result of revaluation is adjusted through the capital accounts of the partners. A Memorandum revaluation account which is a temporary account is opened when the revised values are not to be shown in the books of accounts.
Copyright © 2018-2020 BrainKart.com; All Rights Reserved. Developed by Therithal info, Chennai.