Question

At what figures the value of assets and liabilities appear in the books of the firm after revaluation has been done? Show with the help of an imaginary balance sheet.

Answer 1

After revaluation has been done, the assets and liabilities appear at their current market values in the Balance Sheet of the reconstituted firm. This can be better explained with the help of the below-explained example. A and B shares profit and loss equally.

Balance Sheet of A and B as on April 01, 2011
Liabilities	Amt (Rs.)	Assets	Amt (Rs.)
Sundry Creditors	1,00,000	Cash in Hand	8,000
Capital Accounts		Cash at Bank	28,000
A -  75,000	150,000	Cash at Bank	40,000
B - 75,000		Stock	36,000
		Furniture	38,000
		Plant and Machinery	1,00,000
	2,50,000		2,50,000

1. On that date C is admitted for 1/3^rd share and brings 1,00,000 as capital.
2. The value of stock is increased by Rs 7,000.
3. A provision of Rs 2,000 has been created against Debtors.
4. Furniture revalued at Rs 35,000.
5. A machinery costing Rs 50,000 purchased is not recorded in books.
6. Rent outstanding Rs 2,000.
   Prepare Revaluation Account, Partners’ Capital Account, Cash Account and Balance Sheet.

Solution - 

Dr.		Revaluation Account		Cr.
Particular		Amount (Rs.)	Particular	Amount (Rs.)
Rent Outstanding A/c		2,000	Stock	7,000
Provision for Debtors		2,000	Machinery	50,000
Furniture		35,000
Profit transferred:
A’s Capital A/c	25,000	50,000
B’s Capital A/c	25,000
		57,000		57,000

 

Dr.	A’s Capital Account						Cr.
Date	Particular	J.F.	Amount Rs	Date	Particular	J.F.	Amount Rs
	Balance c/d		1,00,000		Balance b/d		75,000
					Revaluation A/c		25,000
			1,00,000				1,00,000

 

Dr.	B’s Capital Account						Cr.
Date	Particular	J.F.	Amount Rs	Date	Particular	J.F.	Amount Rs
	Balance c/d		1,00,000		Balance b/d		75,000
					Revaluation A/c		25,000
			1,00,000				1,00,000

 

Dr.	C’s Capital Account						Cr.
Date	Particular	J.F.	Amount Rs	Date	Particular	J.F.	Amount Rs
	Balance c/d		1,00,000		Cash A/c		1,00,000
			1,00,000				1,00,000

 

Dr.	Cash Account						Cr.
Date	Particular	J.F.	Amount Rs	Date	Particular	J.F.	Amount Rs
	Balance b/d		8,000		Balance c/d		1,08,000
	C’s Capital A/c		1,00,000
			1,08,000				1,08,000

 

Balance Sheet of A, B & C as at April
Liabilities		Amount (Rs.)	Assets		Amount (Rs.)
Sundry Creditors		1,00,000	Cash in hand		1,08,000
Rent Outstanding		2,000	Cash at Bank		28,000
			Debtors	40,000	38,000
			Less: Provision	2,000
Capital Account
A	1,00,000	3,00,000	Stock		43,000
B	1,00,000		Furniture		35,000
C	1,00,000		Plant and Machinery		1,50,000
		4,02,000			4,02,000