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# Revaluation Account for Partnership

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Chan, Tan and Eric were in partnership sharing profits and losses in the ratio Chan 2/3, Tan
1/4 and Eric 1/12.

Their summarized Balance Sheet as at 31 October 2000 was as follows:

\$ \$ \$
Fixed Assets (at Book Value)
Premises 120000
Machinery 60000
Motor Vehicle 9000 189000

Current Assets
Stock 14200
Debtors 18000
less Provision for Doubtful Debts 360 17640
Bank 16160
48000

Current Liabilities
Creditors 12000 36000
225 000

Long-term Liabilities
Loan from Chan 9000
216000

Capital Accounts
Chan 144000
Tan 54000
Eric 18000 216000

The partnership did not maintain partners' current accounts.
Chan left the partnership on 31 October 2000 to start his own business.
Tan and Eric continued the partnership, sharing profits in the ratio Tan 3/4 and Eric 1/4.

(a) Premises were valued at \$150000
(b) Machinery was revalued at \$ 50000
c) Chan took over machinery which had been revalued at \$ 20000
(d) Provision for doubtful debts was reduced to \$ 260
(e) stock was reduced in value by \$ 1200

The value of Goodwill was agreed at \$ 48000,but was not remain in the partnership accounts.
Chan agreed not to take the cash due to him,but to let it remain as a loan to the new partnership,with a suitable rate of interest to be agreed.

(a) Draw up the revaluation account to show the above adjustments.
(b)Draw up the three partners Capital accounts,in columnar form,after the adjustments have taken place.

(a) Draw up the revaluation account to show the above adjustments.
(b)Draw up the three partners Capital accounts,in columnar form, after the adjustments have taken place.

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A Revaluation Account

Debit Credit
Particulars Amount Particulars Amount
To Machinery \$10,000 By Premises \$30,000
To Stock \$1,200 By Provision for doubtful debts \$100
* To Partners Capital Account (Profit on account of revaluation)
Chan =(8/12)of 18900=12600
Tan =(3/12)of 18900=4725 Note
Eric =(1/12)of 18900=1575 \$18,900 \$18,900 is the net of debit and credit(balancing figure) =30100-10000-1200
\$30,100 \$30,100

B Capital Accounts

Debit Credit

Particulars Amount Particulars Amount
Chan Tan Eric Chan Tan Eric

To Machinery \$20,000 By Opening Balance \$144,000 \$54,000 \$18,000
To Goodwill \$24,000 \$8,000 By Goodwill \$32,000

Loan from Chan \$168,600 By Revaluation Account \$12,600 \$4,725 \$1,575 *
Closing Balance \$34,725 \$11,575
\$188,600 \$58,725 \$19,575 \$188,600 \$58,725 \$19,575

Loan from Chan will increase by \$168,600

Loan from Chan and Closing balance of , Tan and Eric are the balancing figures

Working Notes

Profit sharing ratio before Chan's retirement

Chan Tan Eric
Ratio 2/3 1/4 1/12
= 8/12 3/12 1/12
= 8 3 1

Profit sharing ratio after Chan's retirement (as given)-----------> New ratio

Tan Eric
3 1

Goodwill has been credited to Chan, Tan and Eric in the ratio of 8:3:1
Journal entry
Goodwill account Dr \$48,000
To Chan \$32,000
To Tan \$12,000
To Eric \$4,000

Goodwill is not required to be maintained in the Partnership accounts, therefore written off in the new ratio

Tan Dr \$36,000
Eric Dr \$12,000
To Goodwill Account \$48,000

The net effect of the above two journal entries has been taken to the Partner's Capital Account as

Tan Dr \$24,000
Eric Dr \$8,000
To Chan \$32,000

Balance Sheet after revaluation of assets and retirement of Chan

\$ \$ \$
Fixed Assets (Revalued)
Premises \$150,000
Machinery \$30,000 a
Motor Vehicle \$9,000 \$189,000

Current Assets
Stock \$13,000 b
Debtors \$18,000
less Provision for Doubtful Debts \$260 \$17,740
Bank \$16,160
\$46,900

Current Liabilities
Creditors \$12,000 \$34,900
\$223,900

Long-term Liabilities
Loan from Chan \$177,600 c
\$46,300

Capital Accounts

Tan \$34,725 Closing figures from Closing Account
Eric \$11,575 \$46,300 Closing figures from Closing Account

a
Machinery Revalued \$50,000
Less taken by Chan \$20,000
\$30,000

b Stock \$14,200
Less reduction on revaluation \$1,200
\$13,000

c Loan from Chan \$9,000