Term: 2^nd Term

Week: 5

Class: Senior Secondary School 2

Age: 16 years

Duration: 40 minutes of 2 periods each

Date:

Subject: Financial accounting

Topic:- Partnership account V

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

Explain the meaning of revaluation of assets
Explain how to make journal entries
Explain how to prepare revaluation account and a new balance sheet

INSTRUCTIONAL TECHNIQUES: Identification, explanation, questions and answers, demonstration, videos from source

INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures

INSTRUCTIONAL PROCEDURES

PERIOD 1-2

PRESENTATION	TEACHER’S ACTIVITY	STUDENT’S ACTIVITY
STEP 1 INTRODUCTION	The teacher reviews the previous lesson on partnership account	Students pay attention
STEP 2 EXPLANATION	She explains the meaning of revaluation of assets and how to make journal entries	Students pay attention and participates
STEP 3 DEMONSTRATION	She explains how to prepare revaluation account and a new balance sheet	Students pay attention and participate
STEP 4 NOTE TAKING	The teacher writes a summarized note on the board	The students copy the note in their books

NOTE

PARTNERSHIP ACCOUNT

A Revaluation Account is outlined to determine net profit or loss on

revaluation of assets and liabilities and including those items that are

unrecorded into books. Revaluation account is prepared at the time of

admission of a new partner or in case of death or retirement of a partner.

The Revaluation profit or loss is transferred to the capital a/c of all the

partners comprising deceased or retiring partners in their old profit sharing

ratio (PSR).

What is Revaluation of Assets and Reassessment of Liabilities?

During the admission of a new partner, it is always better to determine

whether the assets of the enterprise are mentioned in the books at their

current values. If the assets are overstated or understated, these are to be

revalued.

Few points that explain why revaluation of assets and reassessment of

liabilities are important.

Reassessment of liabilities is done so that the liabilities are recorded in the books at their appropriate values.
Now and then, there may also be some assets and liabilities of the enterprise that stay unnoticed and unrecorded. These also have to be added into the books of the enterprise. For this cause the enterprise has to outline the Revaluation Account.
The profit or loss on revaluation of each asset and liability is moved to this A/c and its balance is transferred to the capital account of the old partners in their old profit-sharing ratio.
To put it in other words, the revaluation A/c is credited with the rise in the value of each asset and decrease in its liabilities; it is a profit and is debited with a decrease in the merit of assets and increase in its liabilities is debited to revaluation A/c, it is a loss. Correspondingly, unrecorded liabilities are debited and unrecorded assets are credited to the revaluation account.
If the revaluation A/c finally displays a credit (cr.) balance then, it stipulates net profit and if there is a debit balance then it stipulates net loss. Which will be later transferred to the capital account of the old partners in the old ratio

JOURNAL ENTRIES

In the journal entries of revaluation of assets, we record all changes in the

value of fixed assets. As per the cost concept, we have no right to record

increase or decrease in the value of fixed asset. It should be kept on its

historical book cost value. Now, time is going fast. All old concepts of

accounting are being modified on

the basis of revaluation concept. As per new concept, our all assets should

be updated. An investor who check our financial statement should not

mislead by providing old information in the statements. Updated

information means, if any asset's value is decreased due to impairment,

our balance sheet should cut the same loss from that specific loss. If our

investments like shares and stock have increment, it should be recorded in

our financial statements.

Now, all these things can be possible with journal entries of revaluation of

assets.

(1) For an increase in the value of an asset:

Asset A/c	Dr.
To Revaluation a/c

Revaluation Account Debit

Fixed Assets Account Credit

(2)For a decrease in the value of a liability:

Liability A/c	Dr.
To Revaluation a/c

(3)For a decrease in the value of an asset:

Revaluation A/c	Dr.
To Asset a/c

(4) For an increase in the value of a liability:

Revaluation A/c	Dr.
To Liability a/c

(5)For an unrecorded asset:

Asset A/c	Dr.
To Unrecorded asset a/c

(6)For an unrecorded liability:

Revaluation A/c	Dr.
To Unrecorded Liability a/c

(7)The profit on revaluations will be transferred to old partners’ capital accounts in the old profit sharing ratio:

Revaluation A/c	Dr.
To Old partners Capital a/c’s

(8)The loss on revaluations will be transferred to old partners’ capital accounts in the old profit sharing ratio:

Old partners Capital a/c’s	Dr.
To Revaluation A/c

Example:

Assume on December 31, 2011 the company intends to switch to

revaluation concept and carries out a revaluation exercise which estimates

the fair value of the building to be $200,000 as at December 31, 2011. The

book value at the date is $150,000 and revalued amount is $200,000 so an

upward adjustment of $50,000 is required to building account. It is recorded

through the following journal entry:

1 .For recording the revaluation surplus on the building.

Building Account Debit 50,000

Revaluation Account Credit 50,000

For transferring the revaluation surplus to the equity share capital.

Revaluation Account Debit 50,000

Equity Share Capital Account Credit 50,000

If we do not open the revaluation account, we can directly debit the asset

account and credit the equity share capital account in case of any surplus.

For example, if we there is surplus of $ 1,00,000 in the value of shares in

which we have invested. We can easily pass the journal entry of share

investment account Dr. to Equity share capital account Cr.

If there is any decrease in fixed asset, we can also debit the equity share

capital account and credit the asset account.

The journal entries recorded for revaluation of assets and reassessment of liabilities are as follows:

Question 2:

Following is the Balance Sheet of Suhani and Sonia who share profits in the ratio of 3:2.

Balance Sheet of A and B as on April 1, 2018

Liabilities	Amount	Assets	Amount
Capital:		Plant & machinery	30000
Suhani	30000	Furniture	20000
Sonia	20000	Sundry Debtors	20000
Sundry Creditors	50000	Stock	20000
		Cash in hand	10000
	100000		100000

On that date Keshav is admitted into the partnership on the following terms:

Keshav is to bring in Rs. 10,000 as capital and Rs. 5,000 as a premiumfor goodwill for 1/6 share.
The value of a stock is reduced by 10% while plant and machinery are appreciated by 10%.
Furniture is revalued at Rs. 15,000.
A provision for doubtful debts is to be created on sundry debtors at 5% and Rs. 1000 is to be provided for an electricity bill.
Investment worth Rs. 5,000 (not mentioned on the balance sheet) is to be taken into account
A creditor of Rs. 2000 is not likely to claim his money and is to be written off.

Record journal entries and prepare revaluation account and capital account of partners.

Solution:

Books of A, B, and C

Date	Particulars		L.F	Amount	Amount
April 01	Cash a/c	Dr.		15000
	To Keshav’s Capital a/c				10000
	To Goodwill				5000
	(Cash brought in by Keshav as capital and goodwill)
April 01	Goodwill a/c	Dr.		5000
	To Suhani’s Capital A/c				3000
	To Sonia’s Capital A/c				2000
	(Goodwill divided between Suhani and Sonia in sacrificing ratio 3:2)
April 01	Revaluation a/c	Dr.		2000
	To Stock A/c				2000
	(Revaluation in the value of assets )
April 01	Revaluation a/c	Dr.		5000
	To Furniture				5000
	(Revaluation in the value of assets)
April 01	Revaluation a/c	Dr.		1000
	To Provision for Doubtful Debt A/c				1000
	(Revaluation in the value of assets)
April 01	Plant and Machinery A/c	Dr.		3000
	Investment A/c	Dr.		5000
	To Revaluation A/c				8000
	(Increase in the value of assets on revaluation)
April 01	Revaluation A/c	Dr.		1000
	To Outstanding Electricity A/c				1000
	(Amount provided for outstanding electricity bill)
April 01	Sundry Creditors A/c	Dr.		2000
	To Revaluation a/c				2000
	(Amount not likely to be claimed by the creditors written off)
April 01	Revaluation A/c	Dr.		1000
	To Suhani’s Capital A/c				600
	To Sonia’s Capital A/c				400
	(Profit on revaluation of assets and re-assessment of liabilities transferred to Suhani and Sonia in old profit sharing ratio)

Revaluation Account

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
Stock	5000	Plant And Machinery	3000
Furniture	1000	Investments	5000
Provision for Doubtful Debts	1000	Sundry Creditors	2000
Outstanding electricity bill	600
Profit on Revaluation transferred to: Suhani’s Capital Sonia’s Capital	400 2000
	10000		10000

Partner’s Capital Accounts

Date 2018	Particulars	Suhani	Sonia	Keshav	Date 2018	Particulars	Suhani	Sonia	Keshav
April 01	Balance c/d	33600	22400	15000	April 01	Balance b/d	30000	20000
						Cash			15000
						Goodwill	3000	2000
						Revaluation (Profit)	600	400
		33600	22400	15000			33600	22400	15000

EVALUATION: 1. Define revaluation of account

Explain the meaning of revaluation of assets and liabilities
Discuss journal entries due to revaluation account
How can journal entries and a new balance sheet be prepared from a revaluation account?

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively

Lesson Notes By Weeks and Term - Senior Secondary 2

Balance Sheet of A and B as on April 1, 2018

Books of A, B, and C

Revaluation Account

Partner’s Capital Accounts