Table of Contents
REVALUATION ACCOUNT/ PROFIT & LOSS ADJUSTMENT ACCOUNT
Revaluation Account is a nominal account which is prepared at the time of admission, retirement and death of a partner.
Revaluation Account is prepared to know the Gain/loss on revaluation of assets and re-assessment of liabilities.
Assets and liabilities of a firm must also be revalued at the time of change in profit sharing ratio of existing/old partners. The reason is that the realisable or actual value of assets and liabilities may be different from those shown in the Balance Sheet.
The assets are revalued and liabilities of a firm are reassess, at the time of admission of a partner because the new partner should; neither benefit nor suffer because change in the value of assets and liabilities as on the date of admission.
Two reasons for preparation of Revaluation Account at time of admission of a partner are.
i To record the effect of revaluation of assets and re-assessment of liabilities.
ii To ensure that the profits or losses on revaluation of assets and liabilities may be divided amongst the old partners.
- Revaluation Account is also known as the Profit & Loss Adjustment Account.
- This account is credited with all increases in the value of assets and decreases in the value of liabilities.
- This account is debited with a decrease in The of value of assets and an increase in the value of liabilities.
- This account is also credited with the value of unrecorded assets.
- This account is also debited with the value of unrecorded Liabilities.
- If there is a loss due to revaluation, revaluation account is debited and if the revaluation results in a profit, the revaluation account is credited.
- The balance of this account shows a gain or loss on revaluation of assets and liabilities which is transferred to the existing partner’s capital account in existing (old) profit-sharing ratio.
ALSO READ : SUPPLY AND ITS DETERMINANTS/FACTORS AFFECTING SUPPLY
ACCOUNTING ENTRIES RELATED TO REVALUATION ACCOUNT
The following journal entries made for this purpose are:
(i) For increase in the value of assets:
Asset A/c Dr. (individually)
To Revaluation A/c
[Increase in the value of Asets]
(ii) For decrease in the value of Asset
Revaluation A/c Dr. (individually)
To Asset A/c
[Decrease in the value of assets]
(iii) For increase in the value of Liabilities:
Revaluation A/c Dr. (individually)
To Liabilities A/c
[Increase in the value of Liabilities]
(iv) For decrease in the value of Liabilities:
Liabilities A/c Dr.
To Revaluation A/c
[Decrease in the value of Liabilities]
(v) For unrecorded Assets
Asset A/c [unrecorded] Dr.
To Revaluation A/c
[Unrecorded asset recorded at actual value]
(vi) For unrecorded Liability :
Revaluation A/c Dr.
To Liability A/c [unrecorded]
[Unrecorded Liability recorded at actual value]
REVALUATION ACCOUNT
(vii) For increase in provision for doubtful debts:
Revaluation A/c Dr.
To Provision for doubtful debts A/c
[Provision for doubtful debts created on debtors]
(viii) For decrease in provision for doubtful debts:
Provision for doubtful debts A/c A/c Dr.
To Revaluation A/c
[Provision for doubtful debts decrease]
(ix) For create provision for discount on debtors:
Revaluation A/c Dr.
To Provision for discount on debtors A/c
[Provision for discount on debtors created on debtors]
(x) For create provision for discount on creditors:
Provision for discount on Creditors A/c Dr.
To Revaluation A/c
[Provision for discount on creditors created on creditors]
(Xi) Assets purchased by the old partners less than their book value:
Existing Partner’s Capital A/c Dr.
Revaluation A/c Dr.
To Assets A/c
[Assets taken over by old partners]
(xii) For transfer of gain on revaluation:
Revaluation A/c Dr.
To Existing Or Old Partner’s Capital/Current A/c
[Profit on revaluation transferred to capital/current account in existing ratio]
(xiii) For transfer of loss on revaluation:
Existing Or Old Partner’s Capital/Current A/c Dr.
To Revaluation A/c
[Loss on revaluation transferred to capital/current account in existing ratio]
FORMAT OF REVALUATION ACCOUNT
ALSO READ : REALISATION ACCOUNT
ALSO READ :Hidden Goodwill at the time of Admission of A New Partner
Accounting treatment of goodwill;