Unrecorded Assets and Liabilities

At the time of retirement or death of a partner, there may be some assets and liabilities which are not recorded in books at their current values. Also, there may be some unrecorded assets and liabilities which need to be recorded in the books.

A Revaluation Account is prepared in order to ascertain net gain or loss on revaluation of assets and liabilities and bringing unrecorded items into books. The Revaluation profit or loss is transferred to the capital account of all partners including retiring or deceased partners in their old profit sharing ratio.

The following Journal entries are passed:

1. For the increase in the value of Assets

Assets A/c (Individually) Dr.

To Revaluation A/c

(Being increase in the value of assets on revaluation)

2. For a decrease in the value of Assets

Revaluation A/c Dr.

To Assets A/c (Individually)

(Being decrease in the value of assets on revaluation)

3. For an increase in the value of Liabilities

Revaluation A/c Dr.

To Liabilities A/c (Individually)

(Being increase in the value of liabilities on revaluation)

4. For a decrease in the value amount of Liabilities

Liabilities A/c (Individually) Dr.

To Revaluation A/c

(Being decrease in the value of liabilities on revaluation)

5. For an unrecorded Asset

Assets A/c Dr.

To Revaluation A/c

(Being unrecorded asset recorded in books)

6. For an unrecorded Liability

Revaluation A/c Dr.

To Liability A/c

(Being unrecorded liability recorded in books)

7. For transferring Profit on Revaluation

Revaluation A/c Dr.

To All Partners’ Capital A/c (Individually)

(Being Profit on revaluation transferred to all partner’s capital A/c in old ratio)

8. For transferring Loss on Revaluation

All Partners’ Capital A/c (Individually) Dr.

To Revaluation A/c

(Being Loss on revaluation transferred to partner’s capital A/c in old ratio)

The partners may decide that the revalued figures of assets and liabilities will not appear in the books of the firm. In this case, the share of retiring or deceased partner of profit or loss from revaluation of assets and liabilities are adjusted in the remaining partners capital A/cs in their gaining ratio.

The journal entries that will be passed are:

9. In case of Revaluation Profit

Remaining Partners Capital A/c (Individually)                   Dr.

To Retiring Partners Capital A/c

(Being the share of retiring partner in revaluation profit adjusted in remaining partners capital in gaining ratio)

10. In case of Revaluation Loss

Remaining Partners Capital A/c (Individually)                   Dr.

To Retiring Partners Capital A/c

(Being the share of retiring partner in revaluation profit adjusted in remaining partners capital in gaining ratio)