Partnership Revaluation of Assets.

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Presentation transcript:

Partnership Revaluation of Assets

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

Dr Assets Cr Revaluation With decrease in value of assets Dr Revaluation Cr Assets With increase in value of assets Cr Provision for bad debts With increase in provision for bad debts Cr Capital With profit on revaluation (sharing among partners, according to old profit-sharing ratio Dr Capital With loss on revaluation (shared among partners, according to the old profit-sharing ratio)

Example 1

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 respectively No entry has been made for the change of partnership. Balance sheet as at 1 April 1996 Fixed assets Premises 2400000 Furniture & fitting 200000 Motor vehicles 400000 Current assets Stock 650000 Debtors 450000 Cash 300000 1400000 4400000 Capital: Tang 1000000 Wong 600000 Fong 800000 Current:Tang 200000 Wong 100000 Fong 100000 Liabilities Creditors 1600000 4400000

Additional information: Goodwill is to be revalued at $60000 The assets are revalued as follows: Premises $2600000 Furniture $191000 Motor vehicles $350000 Provision for bad debts 10% of debtors Tang took out cash $500000 and left the balance to the business as a loan Lee introduced $600000 cash and a vehicle of $200000 into the business

Provision for bad debts 45000 Goodwill 60000 Revaluation Decrease in value: Premises 200000 Increase in value: Furniture 9000 Motor vehicles 50000 Provision for bad debts 45000 Goodwill 60000 Tang 52000 Wong 52000 Fong 52000 156000 260000 260000 Goodwill Bal b/f 60000 Revaluation 60000 Capital Tang Wong Fong Lee Tang Wong Fong Lee Cash 500000 Bal b/f 1000000 600000 800000 Loan 752000 Revaluation 52000 52000 52000 Bal c/f 652000 852000 800000 Current 200000 Cash 600000 Vehicle 200000 1252000 652000 852000 800000 1252000 652000 852000 800000

Balance sheet as at 1 April 1996 Wong, Fong and Lee Balance sheet as at 1 April 1996 Fixed assets Goodwill 60000 Premises 2600000 Furniture 191000 Motor vehicles (350000+200000) 550000 3401000 Current assets Stock 650000 Debtors 450000 Less provision for bad debts 4500 405000 Cash (300000+600000-500000) 400000 1455000 Less: Current liabilities Creditors 1600000 (145000) 3256000 New values

Capital: Wong 652000 Fong 852000 Lee 800000 Current: Wong 100000 Fong 100000 Long term liabilities Loans from Tang 752000 3256000