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Partnership

Revaluation of Assets

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Introduction

Assets should be revalued when there is a change in the partnership, such as: Admission of new partner Retirement/ withdrawal of partners Change in the profit sharing ratio

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Dr AssetsCr Revaluation

With decrease in value of assets

Dr RevaluationCr Assets

With increase in value of assets

Dr RevaluationCr Provision for bad debts

With increase in provision for bad debts

Dr RevaluationCr Capital

With profit on revaluation (sharing among partners, according to old profit-sharing ratio

Dr CapitalCr Revaluation

With loss on revaluation (shared among partners, according to the old profit-sharing ratio)

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Example 1

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Tang, Wong and Fong were in partnership, sharing profits and losses equally.On 1 April 1996, tang decided to retire from the business and Lee joined as a new partner.The new profit-sharing ratio among Wong, Fong and Lee became 2:2:1 respectivelyNo entry has been made for the change of partnership.

Balance sheet as at 1 April 1996Fixed assetsPremises 2400000Furniture & fitting 200000Motor vehicles 400000Current assetsStock 650000Debtors 450000Cash 300000 1400000 4400000

Capital: Tang 1000000 Wong 600000 Fong 800000

Current:Tang 200000 Wong 100000 Fong 100000

LiabilitiesCreditors 1600000 4400000

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Additional information:1. Goodwill is to be revalued at $600002. The assets are revalued as follows:

Premises $2600000Furniture $191000Motor vehicles $350000Provision for bad debts 10% of debtors

3. Tang took out cash $500000 and left the balance to the business as a loan

4. Lee introduced $600000 cash and a vehicle of $200000 into the business

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Revaluation

Increase in value:Furniture 9000Motor vehicles 50000Provision for bad debts 45000

Decrease in value:Premises 200000

Tang 52000Wong 52000Fong 52000 156000

Goodwill 60000

260000 260000Goodwill

Revaluation 60000Bal b/f 60000

Capital

Tang Wong Fong Lee Tang Wong Fong Lee

Bal b/f 1000000 600000 800000Revaluation 52000 52000 52000Current 200000Cash 600000Vehicle 200000

Cash 500000Loan 752000

Bal c/f 652000 852000 800000

1252000 652000 852000 800000 1252000 652000 852000 800000

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Wong, Fong and LeeBalance sheet as at 1 April 1996

Fixed assetsGoodwill60000Premises 2600000Furniture 191000Motor vehicles (350000+200000) 550000 3401000Current assetsStock 650000Debtors 450000Less provision for bad debts 4500 405000Cash (300000+600000-500000) 400000 1455000Less: Current liabilities

Creditors 1600000 (145000) 3256000

New values

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Capital: Wong 652000Fong 852000

Lee 800000

Current: Wong 100000 Fong 100000

Long term liabilitiesLoans from Tang 752000 3256000