Retirement and Death of a Partner | Accountancy - Revaluation of assets and liabilities | 12th Accountancy : Chapter 6 : Retirement and Death of a Partner
Chapter: 12th Accountancy : Chapter 6 : Retirement and Death of a Partner
Revaluation of assets and liabilities
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
(a) When revised value of assets and liabilities are 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.
Illustration 4
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.
Solution
Illustration 5
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.
Illustration 6
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.
Solution
(b) When revised values of assets and liabilities are not shown in the books:
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.
Related Topics