PARTNERSHIP ACCOUNTING.

PARTNESHIP ACCOUNTING.
REVALUATION
This is when partnership assets are revalued and given new values for
consideration because of the following reasons;
Admission of a new partner.
Retirement or when a partner leaves the firm.
When there is change in profit and loss sharing ratios.
This is done because the new partner is not entitled to the shares of the increase in value of
assets before kikjoining.
Profit /loss on Revaluation
If the revaluation shows no difference in asset valve no action is taken.
Revaluation is recognized when there is a difference between the new total valuation of
assets and old total valuation.
The difference will be accepted as a loss/profit on revaluation I.e. - Profit on Revaluation. Loss on Revaluation.
Double Entry (Revaluation)
1)Gain on Revaluation.
Dr. Profit to revaluation a/c
Dr. Asset a/c with the gain
Cr. Old partners capital a/c with old
Cr. Revaluation a/c
ratios
(2) Loss on Revaluation.
Dr. Revaluation a/c
(4) Decrease in Total Valuation of Assets.
Cr. Asset a/c with the loss
Dr. Partners capital a/c with old ratios
(3)Increase in Total valuation of Assets.
Cr. Loss to revaluation a/c
Good will Purchased Good will is when an entity is bought as a going concurred at a price
greater than the value of identifiable assets.
Total value of Assets = 700.000 but the buyer pays 800.000
Purchased Good will = 800.000 700.000
= 100.000
Advantages of God will
Strategic location.
Skilled employees.
Less competition
Potential suppliers.
Good reputation
Good will existence: Good will be
calculated when;
A new partner is
admitted.
Partner retrieves or
DIES
There is change in
profit/loss sharing
ratios.

Double entry
(1) Admission of new partners.
Dr. Good will a/cs with each partners share in old profit/ loss sharing ratios.
Cr. Capital a/cs with the amount.
Below is a Balance Sheet for 2 Partners A and B, for the period of December 2009.
They share profits and losses equally ,at the beginning of the new year a new partner called C will be admitted with a
capital contribution of 100, 000 . New profit ratios will be , 1/4, and respectively.
A and BS balance sheet at the end of financial year 2009.

Details

Cost

Accumulated
Depreciation

Written down value[WDV]

Land

100,000

100,000=

Machinery

30,000

30,000=

Buildings

130,000

130,000=

Furniture

65,000

65,000=

Motor vehicles

100,000

100,000=

Computers

56,000

56,000=

FIXED ASSETS

Total fixed assets

=481,000=

CURRENT ASSETS
Stock

40,000=

Cash

20,000=

Bank

16,000=

debtors

24,000=

Total current assets

100,000=

Total assets

581,000=

Funded by,
Current accounts for
partners
A

162,500=

162,500=

325,000

Capital accounts for

partners
A

136,000=

120,000=

TOTAL CAPITAL

256,000=
581,000=

Additional information include,

At the end of the year, assets were revalued as shown below.
Buildings 180,000=, Machinery 35,000= , Stock 30,000= , Debtors

20,000= ,Land

200,000= ,Motor vehicles

150,000= and Goodwill 60,000=

Required from the information above is,
a)

Revaluation account.

b)
c)

Ledger accounts

d)

Partners capital accounts

e)

Partners current accounts.

f)

Partners balance sheet for the year after revaluation

Revaluation .
Goodwill
Revision on Partnership Accounts .
(a) Goodwill account was opened
Dr. Goodwill
Cr. Partners Capital Accounts (old ratio)
Capital Accounts
A
Bal c/d

B
shs
X

A
shs
X Bal b/d
Goodwill

B
shs
X
X

shs
X
X

(b) Goodwill account not opened

Dr. Goodwill
Cr. Partners Capital Accounts (old ratio)
Dr. Partners Capital Account (new ratio)
Cr. Goodwill
Capital Accounts
A
Goodwill written off
Bal c/d

B
shs
X
X

A
shs
X Bal b/d
Goodwill
X
3

B
shs
X
X

shs
X
X

(c) Goodwill is revalued, goodwill account maintained

Dr. Goodwill (increase in value)
Cr. Partners Capital Accounts (old ratio)
Capital Accounts
A

B
shs
X

Bal c/d

A
shs
X Bal b/d
Goodwill

B
shs
X
X

shs
X
X

(d) Goodwill is revalued, goodwill account not maintained

Dr. Goodwill (increase in value)
Cr. Partners Capital Accounts (old ratio)
Dr. Partners Capital Accounts (new ratio)
Cr. Goodwill (Total goodwill)
Revision on Partnership Accounts
P.2 of 4
Capital Accounts
A

B
shs
X

Goodwill written off

Bal c/d

A
shs
X Bal b/d
Goodwill

B
shs
X
X

shs
X
X

Goodwill Adjustments
Before
A
B

(2/3)
(1/3)

After

Gain / Loss

shs
2 000 (1/2)
1 000 (1/2)

shs
1 500 Loss shs 500
1 500 Gain shs 500

3 000

3 000

Action needed
Cr. Capital shs 500
Dr. Capital shs 500

Capital Accounts
A
Goodwill adjustments
Bal c/d

B
shs
X

shs
500 Bal b/d
Goodwill adjustments
X
4

A
shs
X
500
X

B
shs
X
X

2.

Revaluation
Revaluation Account
shs
X Increase in value

Decrease in value
Profit on revaluation:
A (2/3)
X
B (1/3)
X

shs
X

X
X

Capital Accounts
A

B
shs
X

Bal c/d

A
shs
X Bal b/d
Profit on revaluation

Revision on Partnership Accounts

B
shs
X
X

shs
X
X

P.3 of 4

Revaluation Account
shs
X Increase in value
Loss on revaluation:
A (2/3)
X
B (1/3)
X

Decrease in value

shs
X

Capital Accounts
A
Loss on revaluation
Bal c/d

B
shs
X
X
X

A
shs
X Bal b/d
X
X

B
shs
X

shs
X

3.

Realisation
Realisation Account
shs
X Assets realized
X Assets taken over
Discounts on creditors

Net book values of assets

Realisation expenses
Profit on realization:
A (2/3)
X
B (1/3)
X

shs
X
X
X

X
X

Capital Accounts
A

B
shs

Current accounts
Assets taken over
Cash / Bank

A
shs
X Bal b/d
X Current accounts
Profit on realisation

X
X

Revision on Partnership Accounts

B
shs
X
X
X

shs
X

P.4 of 4

Realisation Account
shs
X Assets realized
X Assets taken over
Discounts on creditors
Loss on realization:
A (2/3)
X
B (1/3)
X

Net book values of assets

Realisation expenses

shs
X
X
X

Capital Accounts
A

B
shs

A
shs

B
shs

shs

Current accounts
Loss on realisation
Assets taken over
Cash / Bank

X
X

X
X
X

X Bal b/d
X Current accounts
X
X

Cash / Bank Account

Bal b/d
Assets realised

shs
X Creditors (net)
X Realisation expenses
Capital A
B
X

shs
X
X
X
X
X

If one partner becomes insolvent, other partners will have to share the deficiency.
REALISATION ACCOUNTING.
A realisation account is opened in order to ascertain whether a profit
or a loss has been resulted upon the dissolution.
(1) Dr. Realisation Transfer the book values of assets except cash
and bank balance
Cr. Assets
(2) Dr. Realisation With realisation expenses paid
Cr. Bank
(3) Dr. Capital With agreed values of any assets taken over by a
partner
Cr. Realisation
(4) Dr. Cash With amounts realized for the assets
Cr. Realisation
(5) Dr. Creditors With discount received on cash paid to settle
balance sheet liabilities
Cr. Cash
Cr. Realisation
(6) Dr. Capital With balance of realisation transferred to capital
accounts in profit sharing ratio
Cr. Realisation (if loss incurred)
(7) Dr. Capital With balance due to partners as shown by capital
accounts
Cr. Bank
7

DISSOLUTION OF A PARTNERSHIP

When a partnership is dissolved all the accounts need to be

balanced off and any cash surplus distributed to the partners. The
following sequence may be followed:
1 The current account for each partner is cleared to their capital
accounts, because it is no longer necessary to keep a distinction
between the two types of accounts.
2 A realisation account is established and all assets (except cash)
and liabilities are transferred to it at their net book value (NBV).
3 When the assets are sold and the liabilities settled, a double entry
is made between the realisation account and the cash account.
Any expenses incurred during realisation are debited to the
realisation account. During some dissolutions, partners may
decide to take some of the assets for themselves. In these
circumstances it is recorded in their accounts.
4 Once all the assets are disposed of, and all the liabilities met, the
balance on the realisation account is transferred to the partners
account in their profit sharing ratio. A credit balance on the
realisation account represents a profit on dissolution; a debit
represents a loss.
5 The total amount due to the partners should equal the cash
balance. The cash is distributed to the partners and the
partnership is dissolved.