Question

Write journal entries for the revaluation of assets and liabilities and for adjustment of profit/loss on the Revaluation.

Hint:

Revaluation profit or loss must always be shared in the old ratio, not the new ratio.

Answer 1

Revaluation is done when a partner retires, is admitted, or there is a change in profit-sharing ratio. Increase in asset value or decrease in liability value results in profit, while decrease in asset value or increase in liability value results in loss. Profit or loss from revaluation is transferred to partners' capital accounts in their old ratio. The common journal entries are provided below. 
Journal Entries for Revaluation 
\[ \begin{array}{lcl} \text{1. Increase in Asset:} & & \\ \text{Asset A/c Dr.} & \text{xxx} & \\ \text{To Revaluation A/c} & \text{xxx} & \\ \\  \text{2. Decrease in Asset:} & & \\ \text{Revaluation A/c Dr.} & \text{xxx} & \\ \text{To Asset A/c} & \text{xxx} & \\ \\ \text{3. Increase in Liability:} & & \\ \text{Revaluation A/c Dr.} & \text{xxx} & \\ \text{To Liability A/c} & \text{xxx} & \\ \\ \text{4. Decrease in Liability:} & & \\ \text{Liability A/c Dr.} & \text{xxx} & \\ \text{To Revaluation A/c} & \text{xxx} & \\ \\ \text{5. Transfer of Profit on Revaluation:} & & \\ \text{Revaluation A/c Dr.} & \text{xxx} & \\ \text{To Partners' Capital A/c (Old Ratio)} & \text{xxx} & \\ \\ \text{6. Transfer of Loss on Revaluation:} & & \\ \text{Partners' Capital A/c Dr. (Old Ratio)} & \text{xxx} & \\ \text{To Revaluation A/c} & \text{xxx} & \end{array} \]