Question

vi) stock be increase by15000 and plant is to be reduced by 180000.
pass journal entries to give effects to above adjustment and prepare revaluation a/c.
Ch. retirement of partner​

Answer 1

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12th

Accountancy

Change in Profit-Sharing Ratio Among the Existing Partners

Accounting Treatment of Revaluation of Assets and Reassement of Liabilities

Following was the Balance S...

ACCOUNTANCY

Following was the Balance Sheet of A and B who were sharing profits in the ratio of 2:1 as at 31

st

March,2018:

Liabilities (Rs.) Assets (Rs.)

Capital A/c:

A 15,000

B 10,000

Sundry Creditors

25,000

32,950 Building

Plant and Machinery

Stock

Sundry Debtors

Cash in Hand 25,000

17,500

10,000

4,850

600

57,950 57,950

They agree to admit C into the partnership on the following terms:

(a) C was to bring in Rs.7,500 as his capital and Rs.3,000 as goodwill for 1/4

th

share in the firm.

(b) Values of the Stock and Plant and Machinery were to be reduced by 5%.

(c) A provision for Doubtful Debts was to be created in respect of Sundry Debtors Rs.375.

(d) Building Account was to be appreciated by 10%.

Pass necessary Journal entries to give effect to the arrangements. Prepare Profit and Loss Adjustment Account (or Revaluation Account), Capital Accounts and Balance Sheet of the new firm.

Answer 2

Before we introduce a new partner to the partnership firm, we must ensure all the assets and liabilities are valued correctly. So just prior to introducing a new partner revaluation account is made and subsequent adjustments are made in books of accounts. Let us take a look.

Adjustment and Revaluation of Assets

At the time of admission of a new partner, the assets are re-valued and liabilities are reassessed. The assets are re-valued and liabilities are reassessed so that:

The assets are overstated or understated are revalued.

The liabilities are brought in the books at their correct values

Unrecorded assets and liabilities of the firm are brought into the books of the firm

The actual position of the firm is calculated.

Profit and loss arriving on account of such revaluation up to the date of admission of a new partner may be adjusted in the partner’s capital accounts in their old profit sharing ratio.

Browse more Topics under Admission Of A Partner

Reconstitution of a Partnership Firm

Adjustment of Capital and Change in Profit Sharing Ratio Among Existing Partners

Goodwill

Learn more about Financial statement here in detail

Revaluation Account

Revaluation

For this purpose, the firm has to prepare the Revaluation Account. In this account:

An increase in the assets and decrease in its liabilities is credited because it is gain,

A decrease in the value of assets and increase in its liabilities is debited because it is a loss,

Unrecorded assets are credited, and

Unrecorded liabilities are debited.

If the account finally shows a credit balance then it indicates net gain and if there is a debit balance then it indicates the net loss. Profit or loss will be transferred to the capital accounts of the old partners in old ratio.

Journal Entries

The journal entries recorded for revaluation of assets and reassessment of liabilities are as follows:

For an increase in the value of an asset:

Asset A/c Dr.

To Revaluation a/c

For a decrease in the value of a liability:

Liability A/c Dr.

To Revaluation a/c

For a decrease in the value of an asset:

Revaluation A/c Dr.

To Asset a/c

For an increase in the value of a liability:

Revaluation A/c Dr.

To Liability a/c

For an unrecorded asset:

Asset A/c Dr.

To Unrecorded asset a/c

For an unrecorded liability:

Revaluation A/c Dr.

To Unrecorded Liability a/c

The profit on revaluations will be transferred to old partners’ capital accounts in the old profit sharing ratio:

Revaluation A/c Dr.

To Old partners Capital a/c’s

The loss on revaluations will be transferred to old partners’ capital accounts in the old profit sharing ratio:

Old partners Capital a/c’s Dr.

To Revaluation A/c

Solved Example for You

Q: Following is the Balance Sheet of Suhani and Sonia who share profits in the ratio of 3:2.

Balance Sheet of A and B as on April 1, 2018

Liabilities Amount Assets Amount

Capital: Plant & machinery 30000

Suhani 30000 Furniture 20000

Sonia 20000 Sundry Debtors 20000

Sundry Creditors 50000 Stock 20000

Cash in hand 10000

100000 100000

On that date Keshav is admitted into the partnership on the following terms:

Keshav is to bring in Rs. 10,000 as capital and Rs. 5,000 as a premium for goodwill for 1/6 share.

The value