Principles of Accounting: Revaluation of Partnership Assets

////Principles of Accounting: Revaluation of Partnership Assets

Principles of Accounting: Revaluation of Partnership Assets

ZIMSEC O Level Principles of Accounting: Accounting for Partnerships: Goodwill and Partnership businesses: Revaluation of Partnership Assets

  • It is often the case that when a business is sold the selling price of its assets would differ from their book values
  • In such instances there is either a profit or loss on the sale of the assets
  • This profit has to be shared among the partners in their profit/loss sharing ratios
  • When partnerships are involved we have to account for this profit and loss in the value of assets whenever the following happens:
    1. A new partner is admitted
    2. One of the partners leaves the firm for whatever reason e.g. death or retirement
    3. There is a change in the profit/loss sharing ratios
  • As the items are not really being sold in such circumstances the assets have to be revalued to reflect whatever they are worth on the day such any of the above mentioned changes occurs
  • Once the assets have been revalued entries need to be made in ledger accounts to show any gains/losses in the partnership books
  • In the rare event that there is no change in the value of the assets before and after revaluation no entries need  have to be made in the books
  • More often than not however there is often a profit or loss in the value of assets upon revalution

Accounting for revaluation

  • The following entries need to be made in the books in order to account for revaluation:
  • Establish whether the value of an asset has increased or decreased and:
    1. If the value of an asset has increased record the increase using the following entries:
      1. Dr The Asset Account with the amount of increase
      2. Cr Revaluation Account
    2. If the value of an asset has asset has decreased record this decrease using the following entries:
      1. Dr the Revaluation Account with the Amount of decrease
      2. Cr Asset Account with the amount decrease
    3. Once this has been done for each of the partnership’s assets the overall effect has to be assesed. If there is an overall gain/profit in the total value of the partnership’s assets the following entries have to be made:
      1. Cr Capital Accounts  of each partner with their share of revaluation profit using the old  profit/loss sharing ratio
      2. Dr Revaluation Account with the corresponding entries
    4. If there is an overall loss/decrease in the partnership’s assets the the following entries are made:
      1. DR the  Capital Accounts of each partner with their share of the revaluation loss/decrease using the old profit/loss
      2. CR the Revaluation Account with the corresponding entries
  • A simple example demonstrating this can be found here

To access more topics go to the Principles of Accounts Notes.

By |2018-03-20T11:25:30+00:00March 20th, 2018|Notes, Ordinary Level Notes, Principles of Accounts Notes|Comments Off on Principles of Accounting: Revaluation of Partnership Assets

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He holds an Honours in Accountancy degree from the University of Zimbabwe. He is passionate about technology and its practical application in today's world.
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