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When Revised Values are not Shown in the Balance Sheet

If all the partners including the new partner agree to show the original values and not the revised values of assets and liabilities in the new Balance Sheet, a Memorandum Revaluation A/c is prepared.

In this, assets and liabilities are re-valued and entries are passed through Memorandum Revaluation A/c. The arising profit/loss on revaluation is shared among the old partners in old profit sharing ratio.

In order to bring back the assets and liabilities to the original value, the revaluation entries are reversed and the resultant gain/ loss is shared among all the partners (including the new partner) in the new profit sharing ratio.

Illustration 9


Following is the Balance Sheet of M/s. X and Y who share profits in the ratio of 3:2..

Balance sheet as on 31st March, 2014



Z is admitted as a partner with effect from 1st April, 2014, the new profit sharing ratio being 2:2:1. The following information has been given to you:

  1. Z will bring ₹ 20,000 as capital
  2. The value of the firm’s goodwill is ₹10,000
  3. An amount of ₹ 4, 000 owing to D for purchase of goods has been omitted from the list of sundry creditors
  4. Building is to be revaluated at ₹ 60,000 and Plant at ₹ 14,000

You are required to pass the necessary journal entries and prepare the Balance Sheet of the new firm when:

  1. Assets and liabilities have to be shown in the books at the revised values
  2. Assets and liabilities have to continue in the books at the old values



a) When new values have to be recorded in the books.

Journal entries


Balance sheet as on 31st March, 2014



Working notes:


b) When new values are not to be recorded in the books.



Balance Sheet as on 1st April 2014



Working Notes:



Note: The memorandum revaluation account is also known as the memorandum profit and loss adjustment account.

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