Revaluation is an important topic in partnership accounting. It is required in cases of death, admission or retirement cases of partners. When assets are revalued, then the resulting profit or loss are distributed to the existing partners in compliance with the agreed terms and conditions as specified in the partnership deed.
Journal Entries
In case of revaluation of assets, if the assets fair value comes more than the book value:
| Description | Debit | Credit |
| Assets account | xxx | |
| Revaluation account | xxx |
In case of revaluation of assets, if the fair value of the assets come below the book value:
| Description | Debit | Credit |
| Revaluation account | xxx | |
| Asset account | xxx |
Once the entries for revaluation get completed, accountant need to pass distribute such revaluation account balance to the existing partners in proportion to their profit and loss ratio as agreed upon.
In case of gain arising on revaluation of assets, the following entry is passed:
| Description | Debit | Credit |
| Gain on revaluation account | xxx | |
| Adam’s capital | xxx | |
| Boon’s Capital | xxx |
In case of loss arising on revaluation of assets, the following entry is passed:
| Description | Debit | Credit |
| Adam’s capital | xxx | |
| Boon’s Capital | xxx | |
| Loss on revaluation account | xxx |
Example
Adam and Bevan are running a partnership firm since 05 years and they share profit 50 – 50. Their balance sheet on 31st December, 2013 is as follows:
| ASSETS | $ | CAPITAL & LIABILITIES | $ |
| Cash Bills receivable Accounts receivable Inventory Furniture Land & building | 45,000 6,000 32,000 40,000 2,000 50,000 | Account payable Capital – Adam Capital – Bevan | 83,000 60,000 32,000 |
| 175,000 | 175,000 |
On 1st January, 2014, the assets were revalued. The results were as follows:
The land & building has to be increased by $ 400,000.
The furniture & inventory value has to be reduced by 5 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} and 10 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c}.
Requirement
- Record the general entries to record revaluation of assets
- Record the general entry to close the revaluation account
- Record the distribution of profit or loss on revaluation of assets.
Solution
Adam & Bevan Partnership
General Journal Entries
| Description | Debit | Credit |
| To record the revaluation of assets, this entry will be recorded: | ||
Revaluation account Inventory Furniture | 4,100 | 100 4,000 |
| To record the revaluation of land & building, the entry would be: | ||
| Land & building Revaluation account | 400,000 | 400,000 |
| In order to close the revaluation account, the entry would be | ||
| Revaluation account | 395,900 | |
| Gain on revaluation account | 395,900 | |
| In order to record the distribution of gain on revaluation of assets, the entry would be: | ||
| Gain on revaluation account | 395,900 | |
| Adam’s capital Bevan’s capital | 197,950 197,950 |