Book-Keeping and Accountancy · Ch 4 — Reconstitution of Partnership (Retirement of Partner)
Revaluation of Assets and Liabilities on Retirement
Revaluation of Assets and Liabilities on Retirement
By the date a partner retires, the book values of several assets and liabilities may no longer match their true current worth. Since this change in value has taken place while ALL the partners — including the one now retiring — were together running the firm, any resulting profit or loss must be shared among ALL of them, in their OLD profit-sharing ratio, exactly as at admission (though there the profit/loss belonged only to the OLD partners, whereas here it belongs to old and retiring partners together, since the retiring partner IS one of the 'old' partners up to the date he leaves).
Revaluation Account
A nominal account opened at the time of retirement (or any reconstitution) to record the increase or decrease in the value of assets and liabilities; its net balance — profit or loss on revaluation — is transferred to ALL partners' Capital Accounts, including the retiring partner's, in the OLD profit-sharing ratio.
Rules for recording entries in the Revaluation Account
| Change | Effect on Revaluation A/c |
|---|---|
| Increase in the value of an asset | Credit (gain) |
| Decrease in the value of an asset | Debit (loss) |
| Increase in the amount of a liability | Debit (loss) |
| Decrease in the amount of a liability | Credit (gain) |
| An unrecorded asset now brought into the books | Credit (gain) |
| An unrecorded liability now brought into the books | Debit (loss) |
A nominal account recording changes in asset/liability values at retirement; its net profit or loss is shared by ALL partners, including the retiring …