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REVALUATION OF ASSETS AND LIABILITIES IN PARTNERSHIP

To support our effors you can donate a small amount by following this link: http://bit.ly/donatetosupport To Support us please donate via upi at TCT@UPI Revaluation of Assets and Liabilities of a Partnership Firm: Realisable value of the assets and actual position of the liabilities of a firm may not be the same at which they appear in the books. Such a difference does not affect the partners so long as there is no change in the constitution of the firm. If however a change takes place, like admission of a new partner, adjustment is required for the increase or decrease in the value of assets and liabilities. Example: A and B carrying on business in partnership admit C as a partner. At the time of admission, the Building owned by firm had a book value of Rs 40000 whereas the market value of the building on the date of admission was Rs 100000. This increase in value, i.e. profit of Rs (100000-40000) is the sole claim of A & B. C has no right to have a share of this profit because it arises before his admission. How to share this Profit between old partners: This profit on revaluation is to be credited to the old partners in old profit sharing ratio. Revaluation may be effected in 2 ways: a. By altering the book values of assets and liabilities, or b. By retaining the book values Method 1: By Altering Book Values Revaluation Account (or Profit and Loss adjustment Account) is prepared. It is debited with the fall in the value of assets, increase in liabilities and unprovided liabilities. It is credited with the rise in the value of assets, reduction in liabilities and unrecorded assets. The balance of this account represents profit or loss on revaluation which is transferred to the capital accounts of old partners in their old profit sharing ratio. The assets and liabilities will now appear in the books at their real values. Method 2: By Retaining Book Values Ascertain Profit or Loss on Revaluation by preparing a Memorandum Revaluation Account. This profit or loss is distributed among the old partners in old PSR and then it is written back among all partners in their new profit sharing ratio. The net effect of such distribution and writing back is found with the help of a working note and then an adjustment entry is passed for the same through the capital accounts of the partners. The assets and liabilities in this case will continue to appear at the existing book values. Thanks for watching my videos. Support, Share and Subscribe! Gear I use: For writing on screen: http://amzn.to/2wSA955 Microphone : http://amzn.to/2w8ktKk Laptop: http://amzn.to/2wJo8jd Link for my facebook page:   / thecommercetutor   Website: http://www.thecommercetutor.com