Admission of a Partner — Part 2: Revaluation, Reserves, Capitals and Change in Ratio: visual lesson, ISC Class 12 Accounts

Lesson

Revaluation, reserves, capitals and change in ratio

Part 2 — the Revaluation Account, reserves, the capital accounts, the Balance Sheet in horizontal form, adjusting capitals, and a change in ratio among existing partners.

In this lesson you will

Prepare the Revaluation Account and share its result among the old partners
Close reserves and accumulated profits or losses, or keep them with a single adjustment entry
Prepare the capital accounts and the new Balance Sheet in horizontal form, adjusting capitals where agreed
Pass the adjustment entries when existing partners change their profit-sharing ratio

Part 2 at a glance

Concept

Why revalue before admission?

Book values may be out of date: buildings rise, machines wear out, bills go unrecorded.
Gains and losses up to admission belong to the old partners, in the old ratio.

Why revalue first

Compare

The Revaluation Account

Debit (losses)

Fall in an asset
Rise in a liability
Unrecorded liability
New provision

Credit (gains)

Rise in an asset
Fall in a liability
Unrecorded asset
Provision released

Also called the Profit and Loss Adjustment Account.
Debit side (losses)	Credit side (gains)
Fall in the value of an asset	Rise in the value of an asset
Rise in a liability	Fall in a liability
Unrecorded liability brought in	Unrecorded asset brought in
New or higher provision	Provision no longer needed
Balance: profit to old partners (old ratio)	Balance: loss to old partners (old ratio)

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