C hapter 7: Partnership accounts

continued: Revaluation of
assets
Contents of chapter
This chapter covers the accounting entries for revaluation of assets upon a change in partners or a change in the
profit and loss sharing ratio.

Notes for teachers

The need for revaluation of the assets of a partnership is basically the same as for revaluation of goodwill.
1

All the partnership assets are revalued. For each asset:

2
Net book value is greater than the revalued amount:
Debit Revaluation account
Credit Asset account
Net book value is smaller than the revalued amount:
Debit Asset account
Credit Revaluation account

After all assets have been revalued:

3
Overall loss from revaluation: Debit Each partner’s capital account in old profit and loss sharing ratio
Credit Revaluation account
Overall profit from revaluation: Debit Revaluation account
Credit Each partner’s capital account in old profit and loss sharing ratio

68
Answers to MCQs and exercises
7.1 A 7.2 B 7.3 C 7.4 B 7.5 C

7.6
(a) Buildings
$ $
Balance b/f 8,000 Balance c/f 17,500
Revaluation: Increase 9,500
17,500 17,500

Motor Vehicles
$ $
Balance b/f 3,550 Revaluation: Reduction 950
Balance c/f 2,600
3,550 3,550

Stock
$ $
Balance b/f 2,040 Revaluation: Reduction 150
Balance c/f 1,890
2,040 2,040

Office Fittings
$ $
Balance b/f 1,310 Revaluation: Reduction 220
Balance c/f 1,090
1,310 1,310

Revaluation
$ $ $
Motor vehicles ($3,550 – $2,600) 950 Buildings ($17,500 – $8,000) 9,500
Stock ($2,040 – $1,890) 150
Office fittings ($1,310 – $1,090) 220
Profit from revaluation:
5
Dai ( ) 4,090
10
3
San ( ) 2,454
10
2
Chung ( ) 1,636 8,180
10
9,500 9,500
(b)
Dai, San and Chung
Balance Sheet as at 1 January 20X6
Fixed Assets $ $
Buildings 17,500
Motor vehicles 2,600
Office fittings 1,090
21,190
Current Assets
Stock 1,890
Debtors 4,530
Bank 1,390 7,810
29,000

69
 Capital
Dai ($9,560 + $4,090) 13,650
San ($6,420 + $2,454) 8,874
Chung ($4,840 + $1,636) 6,476
29,000

7.7
(a) Revaluation
$ $ $
Machinery ($3,980 – $3,700) 280 Premises ($30,000 – $11,560) 18,440
Motor vehicles ($6,810 – $6,400) 410 Stock ($5,600 – $4,850) 750
Fixtures ($1,540 – $1,200) 340 Goodwill 20,000
Capital: Profit from revaluaton:
4
Fung ( ) 15,264
10
3
Kin ( ) 11,448
10
Chi ( 3 ) 11,448 38,160
10
39,190 39,190

Capital
Fung Kin Chi Lee Fung Kin Chi Lee
$ $ $ $ $ $ $ $
Balances c/f 33,264 21,048 17,448 8,000 Balances b/f 18,000 9,600 6,000 —
Revaluation: Profit 15,264 11,448 11,448 —
Bank — — — 8,000
33,264 21,048 17,448 8,000 33,264 21,048 17,448 8,000

(b) Fung, Kin, Chi and Lee

Balance Sheet as at 1 April 20X9
Fixed Assets $ $
Premises 30,000
Machinery 3,700
Motor vehicles 6,400
Fixtures 1,200
41,300
Intangible Assets
Goodwill 20,000

Current Assets
Stock 5,600
Debtors 3,260
Bank ($1,600 + $8,000) 9,600 18,460
79,760
Capital
Fung 33,264
Kin 21,048
Chi 17,448
Lee 8,000
79,760

70
7.8X
(a) (i) Goodwill
$ $
Balance b/f 2,000 Revaluation 2,000

(ii) Revaluation
$ $ $
Goodwill 2,000 Plant and machinery ($2,000 – $1,800) 200
Stock ($1,960 – $1,900) 60 Capital: Loss from revaluation
3
Au ( 5 ) 1,116
Bong ( 2 ) 744 1,860
5
2,060 2,060

(iii) Capital
Au Bong Chan Au Bong Chan
$ $ $ $ $ $
Loss from revaluation 1,116 744 — Balances b/f 4,000 3,000 —
Balances c/f 2,884 2,256 2,000 Bank — — 2,000
4,000 3,000 2,000 4,000 3,000 2,000

(b) Au, Bong and Chan

Balance Sheet as at 1 January 20X7
Fixed Assets $ $
Plant and machinery 2,000

Current Assets
Stock 1,900
Debtors 2,130
Bank ($2,000 + $90) 2,090
6,120
Less Current Liabilities
Sundry creditors 980
Net current assets 5,140
7,140
Financed by:
Capitals
Au 2,884
Bong 2,256
Chan 2,000
7,140

7.9X
(a) Revaluation
$ $ $
Stock ($39,000 – $36,400) 2,600 Fixtures ($110,000 – $98,600) 11,400
Provision for bad debts 1,500 Goodwill (W1) 56,000
Profit from revaluation shared:
3
Au ( ) 37,980
5
2
Dong ( ) 25,320 63,300
5
67,400 67,400

71
 (b) Capital
Au Dong Chun Au Dong Chun
$ $ $ $ $ $
Goodwill (W1) 150,000 100,000 — Balances b/f 210,000 177,000 —
Balances c/d 97,980 102,320 — Revaluation: Profit 37,980 25,320 —
247,980 202,320 — 247,980 202,320 —

Goodwill Balances b/d 97,980 102,320 —

adjustment (W2) — — 50,000 Bank — — 110,000
Balances c/f 122,980 127,320 60,000 Goodwill
adjustment (W2) 25,000 25,000 —
122,980 127,320 110,000 122,980 127,320 110,000

W1: Goodwill
$ Capital: $
3
Balance b/f 194,000 Au ( ) 150,000
5
2
Revaluation 56,000 Dong ( ) 100,000
5
250,000 250,000

W2: Goodwill adjustments

Old profit ratio New profit ratio Gain/Loss Adjustments
$ $ $ $
3 5
Au 150,000 125,000 Loss 25,000 Cr Au’s capital account 25,000
5 10
2 3
Dong 100,000 75,000 Loss 25,000 Cr Dong’s capital account 25,000
5 10
2
Chun — 50,000 Gain 50,000 Dr Chun’s capital account 50,000
10
250,000 250,000

7.10
(a) Chin and Woo
Profit and Loss Appropriation Account for the year ended 31 March 20X5
$ $
Net profit for the year (W1) 26,600
2
Shared: Chin ( 5 ) 10,640
3
Woo ( ) 15,960 26,600
5

$
(W1) Net profit as per trial balance 27,000
Add Salaries overstated as drawings 3,500
30,500
Less Omission of provision for doubtful debts ($156,000 × 2.5%) 3,900
Corrected figure of net profit 26,600

72
(b) Revaluation
$ $ $
Motor vehicles ($210,000 – $190,000) 20,000 Premises ($500,000 – $430,000) 70,000
Stock ($110,000 – $95,000) 15,000

Capital: Profit from revaluation

Chin ( 2 ) 14,000
5
Woo ( 3 ) 21,000 35,000
5
70,000 70,000

(c) Capital
Chin Woo Hong Chin Woo Hong
$ $ $ $ $ $
Goodwill adjustment (W2) — — 60,000 Balances b/f 380,000 320,000 —
Vehicle: taken over 57,000 — — Revaluation: Profit 14,000 21,000 —
Bank 200,000 33,000 — Goodwill
Current 510 — — adjustments (W2) 48,000 12,000 —
Loan from Chin 184,490 — — Bank — — 300,000
Balances c/f — 320,000 240,000
442,000 353,000 300,000 442,000 353,000 300,000

(W2) Adjustments for goodwill:

Old profit Share of New profit Share of
Gain or loss Adjustments
ratio goodwill ratio goodwill
$ $ $
2
Chin 48,000 48,000 Loss Cr Chin’s Capital
5
3 1
Woo 72,000 60,000 12,000 Loss Cr Woo’s Capital
5 2
1
Hong 60,000 60,000 Gain Dr Hong’s Capital
2
120,000 120,000

Current
Chin Woo Hong Chin Woo Hong
$ $ $ $ $ $
Balance b/f 11,150 — — Balance b/f — 8,700 —
Drawings — 3,500 — Share of net profit 10,640 15,960 —
Balance c/f — 21,160 — Capital 510 — —
11,150 24,660 — 11,150 24,660 —

(d) Woo and Hong

Balance Sheet as at 1 April 20X5
Fixed Assets $ $ $
Premises 500,000
Motor vehicles ($190,000 – $57,000) 133,000
Fixtures 68,000
701,000
Current Assets
Stock 95,000
Debtors 156,000
Less Provision for bad debts 3,900 152,100
Bank (W3) 89,450
336,550

73
 Less Current Liabilities
Creditors 121,900
Net current assets 214,650
915,650
Less Long-term Liabilities
Loan from Chin ($150,000 + $184,490) 334,490
581,160

Financed by:
Capital Accounts
Woo 320,000
Hong 240,000 560,000
Current Accounts
Woo 21,160
581,160

$ $
(W3) Bank as per trial balance 22,450
Add Received from Hong 300,000
322,450
Less Paid to Woo 33,000
Paid to Chin 200,000 233,000
89,450

7.11X
(a) (i) Revaluation
$ $ $ $
Premises 136,000 Furniture and fixtures 14,000
Debtors 6,550 Office equipment 1,150
Stock 4,600 Loss from revaluation:
Capital: Mak ( 1 ) 44,000
3
1
Yeung ( ) 44,000
3
Wong ( 1 ) 44,000 132,000
3
147,150 147,150
Furniture and fixtures 14,000 Premises 136,000
Office equipment 1,150 Debtors 6,550
Loss on revaluation
Capital: Mak ( 3 ) 95,550
4
1
Yeung ( ) 31,850 127,400
4
142,550 142,550

(ii) Capital
Mak Yeung Wong Mak Yeung Wong
$ $ $ $ $ $
Revaluation: loss 44,000 44,000 44,000 Balances b/f 400,000 300,000 280,000
Current — — 7,400 Revaluation: loss 95,550 31,850 —
Goodwill adjustment 38,750 — — Goodwill adjustment — 7,750 31,000
Bank — — 51,920
Loan from Wong — — 207,680
Balances c/f 412,800 295,600 —
495,550 339,600 311,000 495,550 339,600 311,000

74
 Workings:
Goodwill shared Goodwill shared Gain/loss
Old ratio New ratio
in old ratio in new ratio in new ratio
$ $ $
1 3
Mak 31,000 69,750 Gain 38,750
3 4
1 1
Yeung 31,000 23,250 Loss 7,750
3 4
1
Wong 31,000 — — Loss 31,000
3
93,000 93,000

(b) Mak and Yeung

Balance Sheet as at 1 January 20X7
Fixed Assets $ $
Premises at cost 680,000
Furniture and fixtures, at NBV 132,000
Office equipment, at NBV 93,000
905,000
Current Assets
Stock 75,400
Trade debtors (net) 61,750
Cash at bank ($64,150 – $51,920) 12,230
149,380
Less Current Liabilities
Trade creditors 48,300
Net current assets 101,080
1,006,080
Less Long-term Liabilities
Loan: Wong 207,680
798,400
Capital
Mak 412,800
Yeung 295,600 708,400
Current
Mak 54,400
Yeung 35,600 90,000
798,400

7.12X
(a) The Journal
Dr Cr
$ $
Store buildings 60,000
Stock 9,000
3
Capital — Profit from revaluation: Au ($51,000 × 5 ) 30,600
2
But ($51,000 × 5 ) 20,400
Profit from revaluation credited to old partners in old profit and loss ratio.
Current : Chak 6,000
Current : Au 4,400
But 1,600
Adjustments for goodwill (see Workings).
Bank 24,000
Capital: Chak 24,000
Capital introduced by Chak.

75
 Workings:
Old ratios New ratios Loss/Gain Adjustments
$ $ $ $
3 5
Au 14,400 10,000 Loss 4,400 Cr Au’s current 4,400
5 12
2 4
But 9,600 8,000 Loss 1,600 Cr But’s current 1,600
5 12
3
Chak — 6,000 Gain 6,000 Dr Chak’s current 6,000
12
24,000 24,000

(b) Au, But and Chak

Profit and Loss Appropriation Account for the year ended 31 December 20X6
$ $ $
Net profit (W1) 74,800
Less Appropriations:
Salary: Chak (W2) 20,000
Interest on capital: (W3)
Au 8,040
But 4,960
Chak 1,600 14,600 34,600
40,200
Profits shared:
5
Au ( 12 ) 16,750
4
But ( ) 13,400
12
Chak ( 3 ) 10,050 40,200
12

W1: $84,800 – Chak’s salary for 4 months (Jan – Apr) as store manager $10,000 ($30,000 × 4 ) = $74,800
12

W2: Partnership salary (May – Dec) $30,000 × 8 = $20,000

12

W3: Au: Interest before change ($60,000 × 10% × 4 ) + Interest after change [($60,000 + Profit from revaluation
12
$30,600) × 10% × 8 ]
12
= $2,000 + $6,040 = $8,040

4
But: Interest before change ($36,000 × 10% × ) + Interest after change [($36,000 + Profit from revaluation
12
$20,400) × 10% × 8 ]
12
= $1,200 + $3,760 = $4,960

Chak:$24,000 × 10% × 8 = $1,600

12

7.13
(a) (i) Revaluation
20Y0 $000 20Y0 $000
Jan 1 Office furniture Jan 1 Office equipment
($100,000 – $80,000) 20 ($700,000 – $600,000) 100
Stock Motor vehicle
($3,500,000 – $3,300,000) 200 ($50,000 – $40,000) 10
Provision for doubtful debts Long-term investments
($5,000,000 × 2%) 100 ($1,400,000 – $500,000) 900
Profit from revaluation Trade creditors
1
Mr Lai ( ) 355 ($3,000,000 – $2,980,000) 20
2
Mr Ma ( 1 ) 355
2
1,030 1,030

76
 (ii) Goodwill
20Y0 $000 20Y0 $000
Jan 1 Capital accounts: Jan 1 Capital accounts:
1 1
Mr Lai ( 2 ) 75 Mr Lai ( 3 ) 50
1 1
Mr Ma ( ) 75 Mr Ma ( ) 50
2 3
Mr Ng ( 1 ) 50
3
150 150

(iii) Capital
Lai Ma Ng Lai Ma Ng
20Y0 $000 $000 $000 20Y0 $000 $000 $000
Jan 1 Goodwill: Jan 1 Balance b/f 3,820 3,320 —
adjustment of Revaluation:
goodwill 50 50 50 Profit from
Balances c/f 4,200 3,700 2,950 revaluation 355 355 —
Goodwill:
adjustments of
goodwill 75 75 —
Cash 3,000
4,250 3,750 3,000 4,250 3,750 3,000

(b) Mr Lai, Mr Ma and Mr Ng Partnership

Balance Sheet as at 1 January 20Y0
Fixed Assets $000 $000 $000
Office equipment, at valuation 700
Motor vehicle, at valuation 50
Office furniture, at valuation 80
830
Long-term investments
Investments in listed shares, at valuation 1,400

Current Assets
Stock 3,300
Trade debtors 5,000
Less Provision for doubtful debts 100 4,900
Bank ($400,000 + $3,000,000) 3,400
11,600
Less Current Liabilities
Trade creditors 2,980
Net current assets 8,620
10,850
Capital accounts
Mr Lai 4,200
Mr Ma 3,700
Mr Ng 2,950
10,850

77