# Revaluation of Assets Before Admission Of New Partner(s)

When admitting a new partner/change in partnership, sometimes there is a need to assess true assets value of the existing partnership. This article deals with any profit or loss arising from such revaluation.

Revaluation Of Assets

·         Open a Revaluation Account to show the increase or decrease of the firm’s assets value:

Revaluation Account

 Debit \$ Credit \$ Decrease in Assets Value X Increases in Assets Value X

·         If total increases (credit) exceed decreases(debit), the difference namely profit upon revaluation of assets is transfer to  the existing or old partners capital accounts in their old profit sharing ratio

·         If total decreases (debit) exceed increases(credit), the difference namely the loss upon revaluation of assets is transfer to existing or old partners capital accounts in their old profit sharing ratio

Remember that the corresponding assets need to be adjusted too

·         Refer below to the T-Account

Assets Account

 Debit \$ Credit \$ Increases in Assets Value X Decreases in Assets Value X

Illustration:

Jim and John are partners sharing profits 50:50.

The firm’s Balance Sheet as at 31 December 2007 as follows:

Balance Sheet as at 31 December 2007

 Debit \$ Credit \$ Capital: Fixtures & Fittings 10,000 Jim 10,000 Stock 4,000 Debtors 2,000 Bank 4,000 John 10,000 20,000 20,000

On 1 January 2008, they admit Alex and the new profit sharing ratio is :40:40:20

The assets are to be valued as follows:

 \$ Fixtures & Fittings 12,000 Stock 5,000 Debtors 1,000

Required:

Show only the Revaluation Account and Partners’ Capital Accounts

Solution:

Revaluation Account

 Debit \$ Credit \$ Decreases in Assets: Increases in Assets: Debtors 1,000 Fixtures & Fittings 2,000 Stocks 1,000 Profit on revaluation: Partners’ Capital account: Jim: 50% x \$2,000 1,000 John: 50% x \$2,000 1,000 3,000 3,000

Partners’ Capital Account

 DR \$ \$ \$ CR \$ \$ \$ Jim John Alex Jim John Alex Balance c/d 11,000 11,000 Balance b/f 10,000 10,000 Profit on Revaluation 1,000 1,000 11,000 11,000 11,000 11,000

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