GOVERNMENT OF ANDHRA PRADESH

DEPARTMENT OF TECHNICAL EDUCATION

Name of the participant : N sai ram

Designation : Head of section
Branch : DCCP
Institute : GPW, kakinada
Year/Sem : IV sem
Subject : Accountancy - III
Subject code : CCP – 402
Major topic : Partnership
Sub topic : Admission of partner
Duration : 50 minutes
Teaching aids : PPT

CCP402.43 1
 PARTNERSHIP ACCOUNTS
ADMISSION OF PARTNER

Objective
On completion of this period, you would
be able to understand:
 what is revaluation of assets and
liabilities
 what is revaluation account or profit
and loss adjustment account

CCP402.43 2
Recap

So far we have learnt

 Partnership a/c
 Calculation of new profit sharing ratio
 Methods of treatment of goodwill

CCP402.43 3
Revaluation of assets and liabilities
 Before admission of a new partner, it is customary to
revalue the assets and liabilities
 By the passage of time, the value of assets and liabilities
may change
 There may be a depreciation(decrease) or
appreciation(increase) in the value of asset
 It becomes necessary to bring the value of assets and
liabilities to their true values

CCP402.43 4
Revaluation of assets and liabilities

 Hence, the assets and liabilities are to be adjusted in the

books to their true values/market values
 There may be a profit or loss on account of revaluation
 Such a profit or loss should belong only to the old
partners
 New partner should not have anything to do with this
revaluation

CCP402.43 5
Revaluation of assets and liabilities

 Revaluation is to be made before the admission of a

partner
 The loss or gain on revaluation is to be transferred to the
old partners’ capital accounts
 For this purpose a new account in the name of
 “Profit and loss adjustment account” Or
“Revaluation account” is to be opened
 All necessary adjustments in respect of revaluation are
recorded in this account

CCP402.43 6
Revaluation account
 All changes in the value of assets and liabilities are
made in this account
 It is also known as “Profit And Loss Adjustment A/C”
 Revaluation account is to be debited when
 the value of asset decreases
 the liability amount increases

CCP402.43 7
 Revaluation account
 Revaluation account is to be credited when
 The value of asset increases
 The liability amount decreases
 The balance in this account after the above adjustments
indicates the loss or gain
 This loss or gain is to be transferred to the old partners’
capital accounts in their profit sharing ratio

CCP402.43 8
Journal entries
1. When the value of asset decreases:

Revaluation a/c Dr XXX

To Asset a/c XXX
(being the value decreased)

CCP402.43 9
Journal entries
2. When the amount of liability increases

Revaluation a/c Dr XXX

To Liability a/c XXX
(being the liability increased)

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Journal entries
3. When the value of asset increases

Asset a/c Dr XXX

to Revaluation a/c XXX
(being the value of asset increased)

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Journal entries
4. When the liability decreases

Liability a/c Dr XXX

To revaluation a/c XXX
(being the liability decreased)

CCP402.43 12
Journal entries
5. For distribution of loss on Revaluation a/c
to partners

Capital a/cs Dr XXX

To Revaluation a/c XXX
(being the loss on revaluation is
distributed to existing partners)

CCP402.43 13
Journal entries
6. For distribution of gain on revaluation to
partners’ capital accounts:

Revaluation a/c Dr XXX

To Capital a/c’s XXX
(being the gain on revaluation is
distributed to existing partners)

CCP402.43 14
 Summary
Revaluation of assets and liabilities

 The market value of assets may be different from their

book value
 Similarly, there may be a change in the value of liabilities
 On admission of a new partner, all the assets and
liabilities have to be revalued and brought to their true
market value
 There may be a profit or loss on account of revaluation

CCP402.43 15
Summary
 The profit or loss should be shared only by the existing
partners
 For this purpose, an account called, ‘Revaluation
account’ is to be opened
 Revaluation account is to be debited when
 the value of asset decreases
 the liability amount increases

CCP402.43 16
Summary

 Revaluation account is to be credited when

 the value of asset increases
 the liability amount decreases

CCP402.43 17
 Review questions

1. What is ‘Revaluation’?
2. What is the necessity of Revaluation?
3. What is Revaluation Account?
4. What is the journal entry for the increase in the value of
an asset?
5. What is the journal entry for the transfer of profit on
revaluation?

CCP402.43 18
Quiz
1. The revaluation a/c is debited when
a) Increase in liability
b) Decrease in asset
c) Both a and b
d) None of the above

CCP402.43 19
2. The P & L adjustment a/c is credited when
a) Decrease in liability
b) Increase in asset
c) Both a & b
d) None of the above

CCP402.43 20