Partnership Revaluation of Assets 1 Introduction Assets should

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Partnership Revaluation of Assets 1

Partnership Revaluation of Assets 1

Introduction Assets should be revalued when there is a change in the partnership, such

Introduction Assets should be revalued when there is a change in the partnership, such as: n n n Admission of new partner Retirement/ withdrawal of partners Change in the profit sharing ratio 2

Dr Assets Cr Revaluation Dr Revaluation Cr Assets With decrease in value of assets

Dr Assets Cr Revaluation Dr Revaluation Cr Assets With decrease in value of assets Dr Revaluation Cr Provision for bad debts Dr Revaluation Cr Capital With increase in provision for bad debts Dr Capital Cr Revaluation With loss on revaluation (shared among partners, according to the old 3 profit-sharing ratio) With increase in value of assets With profit on revaluation (sharing among partners, according to old profitsharing ratio

Example 1 4

Example 1 4

Tang, Wong and Fong were in partnership, sharing profits and losses equally. On 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 Capital: Tang 1000000 Fixed assets Wong 600000 Premises 2400000 Fong 800000 Furniture & fitting 200000 Motor vehicles 400000 Current: Tang Wong 100000 Current assets Fong 100000 Stock 650000 Liabilities Debtors 450000 1600000 Cash 300000 1400000 Creditors 5 4400000

Additional information: 1. Goodwill is to be revalued at $60000 2. The assets are

Additional information: 1. Goodwill is to be revalued at $60000 2. The assets are revalued as follows: 1. 2. 3. 4. Premises Furniture Motor vehicles Provision for bad debts 10% of $2600000 $191000 $350000 debtors 3. Tang took out cash $500000 and left the balance to the business as a loan 4. Lee introduced $600000 cash and a vehicle of $200000 into the business 6

Revaluation Decrease in value: Increase in value: Premises Furniture 9000 Goodwill Motor vehicles 50000

Revaluation Decrease in value: Increase in value: Premises Furniture 9000 Goodwill Motor vehicles 50000 Provision for bad debts 45000 Tang 52000 Wong 52000 Fong 52000 156000 260000 Goodwill Revaluation 60000 Bal b/f 200000 60000 260000 Capital Tang Wong Fong Lee Cash 500000 Bal b/f 1000000 600000 800000 Loan 752000 Revaluation 52000 Bal c/f 652000 800000 Current 200000 Cash 600000 Vehicle 200000 7 1252000 652000 852000 800000

Wong, Fong and Lee Balance sheet as at 1 April 1996 Fixed assets Goodwill

Wong, Fong and Lee Balance sheet as at 1 April 1996 Fixed assets Goodwill Premises Furniture Motor vehicles (350000+200000) Current assets Stock Debtors Less provision for bad debts Cash (300000+600000 -500000) Less: Current liabilities Creditors ) New values 450000 4500 60000 2600000 191000 550000 3401000 650000 405000 400000 1455000 1600000 (145000 3256000 8

Capital: Wong Fong Lee 652000 800000 Current: Wong Fong 100000 Long term liabilities Loans

Capital: Wong Fong Lee 652000 800000 Current: Wong Fong 100000 Long term liabilities Loans from Tang 752000 3256000 9