ACCOUNTING PROCEDURE

Values to be altered in Books. • In this case a profit & Loss Adjustment Account

(or Revaluation Account) is opened and the following steps are taken:

1)            When value of Asset is increased

Particular Assets A/c…………………. Dr.                              With the amount of increase

To revaluation A/c…………………… Cr.                In the value of assets.

2)              When value of asset is decreased:

Revaluation A/c……….. Dr.                                                With ‘the amount of decrease

To particular Assets A/c………….. Cr.               in the value of assets.

3)              When value of liabilities is increased:

Revaluation A/c……….. Dr.                                                 With the amount of increase

To particular liabilities A/c….Cr.                        in the value of liability.

4)            When value of liabilities is decreased:

Particular Liabilities A/c ……………. Dr.                              With the amount of decrease

To Revaluation A/c…………….. Cr.                      In the value of liability.

After passing all the journal entries regarding revaluation of assets and liabilities, Revaluation Account will be prepared. If credit side of revaluation is greater than the debit side, there will be gain on revaluation. This again will be distributed among the old partners in their old Profit & Loss sharing ratio. The Journal entry

will be.

Revaluation A/c…………….. Dr.           With their respective share of profit

To old partner’s capital

If debit side of revaluation is greater than the credit side, there will be loss on revaluation. This loss will be distributed among old partners in their old profit

sharing ratio. The Journal entry will be:

Old partner’s Capital A/c………………. Dr. With their respective share of loss

To Revaluation A/c …………….. Cr.

General Reserve:

At the time of admission of a partner any general reserve or balance of profit & Loss Account appears in the books of Accounts should be transferred to the old partners

in their old profit sharing ratio.-The Journal entry will be.

General reserve / Profit & Loss A/c…………… Dr. With their respective share.

To old Partner’s Capital A/c…………………………….. Cr. Of general reserve.

bllustration

A and B are partners sharing profits and losses equally. Their Balance Sheet stood as follows on 3 1st December 2005

_

Assets

Amount

Liablities

Amount

Cash in hand

5,000

Sundry creditors

18,000

Stock

20,000

Capital            A

60,000

Sundry Debtors

40,000

B

60,000

Building

73,000

1,38.000

1.38,000

They admitted C as a new partner in the firm Jan. 1 2005 on the following terms.
1) C is to pay Rs. 40,000 as his capital
2) Stock to be Depreciated by 10%
3) Building is valued at Rs. 78,000.
Required: Pass the necessary Journal entries and give the ledger Accounts and opening Balance Sheet of the new firm.

ParticularsDrCr
Cash A/c
To C's capital A/c
C brought capital
Revaluation A/c
To Stock A/c
Decrease in the value of Stock Recorded.
Building A/c
To Revaluation A/c
Increase in the value of building recorded
40,000


2,000


5,000

40,000



2,000


5,000

______________________  A B C A B ______ C
Balance c/d

_

61,500

61,500 40,000 By balanceBy cash A/c By Revaluation 60,00015,000 60,00015,000 40,000     ‘

61,500

61,500 40,000
61,500 61,500 40,000

Revaluation Ale

To stockProfit Transferred A/cA capital                               1,500B capital                               1,500 20003000 By building 5,000
5000 5000

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