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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.

    The following adjustments were made
    (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.

    © BrainMass Inc. brainmass.com December 24, 2021, 4:49 pm ad1c9bdddf
    https://brainmass.com/business/accounting/revaluation-account-partnership-9092

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    Answers

    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
    Add Chan's Capital Account $168,600
    $177,600

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com December 24, 2021, 4:49 pm ad1c9bdddf>
    https://brainmass.com/business/accounting/revaluation-account-partnership-9092

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