Revaluation Account of Partnership Firm
Revaluation account is a nominal account. It is prepared for the purpose of distributing and transferring the profit or loss arising out of increase or decrease in the book value of assets and/ or liabilities of the partnership firm at the time of Change in profit sharing ratio, admission of a partner, retirement of a partner as well as at the time of death of a partner.
Revaluation account is also called Profit and loss adjustment account.
Revaluation Profit/Loss in case of Admission of Partner
The profits arising out of revaluation are shared by the old partners in their old profit-sharing ratio by passing the following journal entry:
Revaluation A/c                          Dr.
   To Old Partner's Capital A/c (in old ratio)
Reverse entry is passed in case of loss on revaluation. (No share is given to the new partner.)
Revaluation Profit/Loss on Retirement/Death of Partner
For profit on revaluation of assets and liabilities:
Revaluation A/c                                  Dr
     To All Partners Capital A/c (including retiring/deceased partner in old ratio)
Reverse entry is passed in case of loss on revaluation.
Format of Revaluation account
Since it is a nominal account, it is easy to prepare its format.
| Particulars( Losses) | ₹ | Particulars(Gains) | ₹ |
| Decrease in asset Increase in liability Unrecorded liability Balance(profit) | Increase in asset Decrease in liability Unrecorded Asset Balance (loss) | ||
| Total | Total |
Now, it has become easier to give its proper format:
Dr.                              Revaluation Account                                 Cr.
| Particulars | ₹ | Particulars | ₹ |
| To Asset A/c (decrease) To Liability A/c (increase) To liability A/c (unrecorded) To Partners’ capital accounts (profit as balancing figure) | By Asset A/c (increase) By Liability A/c (decrease) By Asset A/c (unrecorded) By Partners’ capital accounts (loss as balancing figure) | ||
Note:Â It is to be noted down that only the amount of change is to be recorded in revaluation account, in no case the full value of the asset or liability is to be recorded here.
Some special cases have been dealt with here for the proper understanding of all this:
Revaluation Account
Transactions regarding debtors and provision for doubtful debts:
Given: The book value of debtors as on 31st March 2024 was ₹60,000, and the provision for bad debts amounted to ₹3000.
| Effect of Transaction | on Revaluation Account | on Balance Sheet |
| 1. ₹4000 proved bad. | Dr. with ₹1000. | Debtors to be shown at ₹56000. |
| 2. Provision for bad debts to be created @ 6%. | Dr. with ₹600. | Debtors to be shown at ₹56400. |
| 3. Provision for bad debts to be increased to ₹5000. | Dr. with ₹2000. | Debtors to be shown at ₹55000. |
| 4. Provision for bad debts to be increased by ₹5000. | Dr. with ₹5000. | Debtors to be shown at ₹52000. |
| 5. Provision for bad debts found to be in excess by ₹ 1000. | Cr. with ₹1000. | Debtors to be shown at ₹58000. |
| 6. Provision for bad debts found to be short by ₹ 2000. | Dr. with ₹2000. | Debtors to be shown at ₹55000. |
| 7. All debtors are good. | Cr. with ₹3000. | Debtors to be shown at ₹60000. |
| 8.90% debtors are good. | Dr. with₹3000. | Debtors to be shown at ₹54000. |
| 9. Provision for bad debts is to be increased to 10%. | Dr. with₹3000. | Debtors to be shown at ₹54000. |
| 10. Provision for bad debts is to be brought down to ₹1800. | Cr. with ₹1200. | Debtors to be shown at ₹58200. |
| 11. Provision for doubtful debts to be reduced by ₹1000. | Cr. with ₹1000. | Debtors to be shown at ₹58000. |
It is very interesting to note that almost all the tangible fixed assets decrease in value, but land and building have a special feature of increase in value. Some cases have been taken here relating to land and building:
Revaluation Account
Land and Building appears at ₹ 1,00,000 in the Balance Sheet of the firm as on 31st March 2024.Â
| Effect of Transaction | on Revaluation Account | on Balance Sheet |
| 1. The value of Land and building has appreciated by ₹10000. | Cr. with ₹10000. | Land and Building to be shown at ₹110000. |
| 2. The value of Land and building has appreciated by12%. | Cr. with ₹ 12000. | Land and Building to be shown at ₹112000. |
| 3. The value of Land and building has appreciated to 110%. | Cr. with ₹ 10000 | Land and Building to be shown at ₹110000. |
| 4. The land and building has been valued at ₹120000. | Cr. with ₹20000 | Land and Building to be shown at ₹120000. |
| 5. The value of land and building to be brought up to ₹ 110000. | Cr. with ₹ 10000 | Land and Building to be shown at ₹110000. |
| 6. The value of land and building be brought to its market value, which is ₹ 5000 more. | Cr. with ₹ 5000 | Land and Building to be shown at ₹105000. |
| 7. The value of land and building to be brought to its market value which is at 110% of its book value. | Cr. with ₹ 10000 | Land and Building to be shown at ₹110000. |
Revaluation Account
Treatment of unrecorded assets:
| Effect of Transaction | on Revaluation Account | on Balance Sheet |
| 1. There was prepaid rent to the extent of ₹2000. | Cr. with₹2000. | Asset side, Prepaid rent, ₹2000. |
| 2. An old piece of machinery completely written off in the books of the firm, now sold for ₹ 300. | Cr. with ₹ 300. | Cash Increases with ₹ 300. |
| 3. Firm owned 300 shares of a company, face value being ₹ 3000, completely written off, now taken over by C, a partner at ₹ 3 each. | Cr. with ₹900. | Capital of C decreases by ₹900. |
| 4. Joint life policy having surrender value ₹ 3400 unrecorded.***** | Cr. with ₹3400. | Asset side, Joint Life Policy, ₹3400. |
| 5. A debtor who owed ₹ 4000 to the firm, and whose account had been written off, now paid ₹ 1000. | Cr. with ₹1000. | Asset side, Cash increases with ₹ 1000. |
| 6. Accrued rent ₹500. | Cr. with ₹500. | Asset side, Accrued rent ₹ 500. |
Revaluation Account
Treatment of unrecorded liabilities:
| Effect of Transaction | on Revaluation Account | on Balance Sheet |
| 1. A contingent liability worth ₹ 500 became actual liability. | Dr. with ₹ 500. | Liability side ₹ 500. |
| 2. Outstanding rent ₹4000. | Dr. with ₹ 4000. | Liability side, Outstanding rent ₹ 4000. |
| 3. Bill discounted by the firm now dishonoured, ₹1000. | nil | Bank Balance will decrease by ₹ 1000 and Debtors will be increased by the same amount. |
| 4. Commission received in advance ₹356. | Dr. with ₹ 356. | Liability side ₹ 356. |
| 5. A worker met with an accident, paid ₹ 50000, now. | Dr. with ₹ 50000. | Asset side ,Bank balance decreases by ₹ 50000. |
| 6. A case was pending in the court; firm had to pay ₹ 20000. | Dr.₹ 20000. | Asset side, Bank Balance decreases by ₹ 20000. |
Revaluation Account
Some more typical transactions:
| Effect of Transaction | on Revaluation Account | on Balance Sheet |
| 1.Creditors amounting to ₹1,000 were not likely to be claimed. Hence, be written back. | Cr. with ₹1,000 | Subtract from Creditors |
| 2. A debtor whose dues of ₹12,000 were written off as bad debts last year, paid ₹9,000 in full settlement. | Cr. with ₹9,000 | Bank increases by ₹9,000 |
| 3. Rajesh was to carry out reconstitution of the firm at a remuneration of ₹5,000. | Dr. with ₹5,000 | Rajesh’s capital increases by ₹5,000 |
| 4. Machinery taken by P (Partner) for ₹10,000 (Book Value of Machinery is ₹6,000). | Cr. with ₹4,000 | P’s Capital decreases by ₹10,000 Machinery decreases by ₹6,000 |
| 5. Stock is overvalued by 10% (Book Value of Furniture is ₹22,000) Present value of Stock is 110% i.e. ₹22,000 If 110% is equal to = 22,000 Then, 1% …………… = 22,000/110 So, 100%...... = (22,000/110) X 100 = 20,000 | Dr. with ₹2,000 | Stock decreases by ₹2,000 |
| 6. Stock is undervalued by 10% (Book Value of Stock is ₹18,000). | Cr. with ₹2,000 | Stock increases by ₹2,000 |
| 7. Stock was found overvalued by ₹7,000. | Dr. with ₹7,000 | Stock decreases by ₹7,000 |
| 8. Half of the Stock is taken by Q (Partner) for ₹20,000 and the balance is revalued at ₹30,000 (Book Value of Stock is ₹45,000). | Cr. with ₹5,000 | Q’s capital decreases by ₹20,000 Stock decreases by ₹15,000 |
| 9. Stock included ₹2,000 for obsolete items. Hence are to be written back. | Dr. with ₹2,000 | Stock decreases by ₹2,000 |
| 10. A Bill Receivable of ₹7,000 previously discounted with the banker, was dishonoured on 31st March, 2022 but no entry has been passed for dishonor. | NIL | ₹7,000, Debtors increase ₹7,000, Bank decreases |
| 11. Out of the amount of the insurance premium which was debited to Profit and Loss A/c, ₹800 to be carried forward to next year. | Cr. with ₹800 | Asset side ₹800 Prepaid Insurance |
| 12. Mahesh an old customer whose account was written off as bad debts, has promised to pay ₹4,000 in settlement of his dues. | Cr. with ₹4,000 | Debtors increase by ₹4,000 |
| Alternatively, The above transaction can be ignored, as only a promise is there. | NIL | NIL |
| 13. Bill accepted of ₹5,000 issued by creditors were not recorded in the books. | NIL | Creditors decrease Bills Payable increase |
| 14. Expenses debited in the Profit & Loss A/c included ₹1,000 paid for a partner’s personal expenses. | Cr. with ₹1,000 | Partner’s Capital Account decreases by ₹1,000 |
| 15. A credit purchase of goods for ₹1,200 were not recorded in the books but had been included in stock. | Dr. with ₹1,200 | Increase in Creditors ₹1,200 |
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