Revaluations, Financial Accounting

Revaluations

Partners rarely revalue their assets and any revaluations may be carried out when a new partner is being admitted or an old partner is retiring.  

To facilitate the process a revaluation account is opened whereby any revaluation gains are credited to he account while revaluation losses are debited to the account.  The balance in this account represents a profit or loss on revaluation, which is now transferred or closed off to the partners’ capital accounts according to their Profit Sharing Ratio (PSR)

NOTE:
On the profit or loss on revaluation

1) If the revaluation is carried out when a new partner is being admitted, then the new partner is not entitled to receive any share of the gain nor bear any loss.

Entries for the gain or loss are made only in the old partners’ capital accounts according to the old PSR.

2) If the revaluation is carried out on retirement of a partner, then the retiring partner is still entitled to a share of profit or loss. Therefore, the gain or loss will be adjusted for in all the partners’ capital accounts including the retiring one according to the old PSR.

3) In any other situation, e.g. the revaluation is carried out when there is a change in PSR then any gain or loss will be adjusted for in all the partners capital accounts but still the old PSR.

Posted Date: 12/11/2012 6:23:01 AM | Location : United States







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