When assets and liabilities have to appear in the books at the revised values.
In such a case a Profit and Loss Adjustment Account or Revaluation Account is opened in the books. The following entries are to be passed.
(i) For increase in the value of an asset or decrease in the value of a liability:
Asset/Liability A/c Dr.
To P. & L. AdjustnientA/c
(ii) For decrease in the value of an asset or increase in the value of a liability.
P. & L. Adjustment A/c Dr.
To Asset/Liability A/c
(iii) The profit on revaluation will be transferred to old partners’ capital accounts in the old profit sharing ratio.
P. & L. Adjustment A/c Dr.
To Old Partners Capital A/cs. (Individually)
In the event of loss, the entry will be reversed.
When assets and liabilities have to appear at old values in the books
A Memorandum Profit and Loss Adjustment Account will be opened in the books. The increase in the value of assets or decrease in the value of liabilities will be credited to this account. The decrease in the value of assets or increase in the value of liabilities will be debited to this account. However only two entries will be passed:
(i) For credited in the profit on revaluation to old partners’ accounts:
Memorandum P. & L. Adjustment A/c Dr.
To Old Partners’ Capital Accounts (in old ratio)
In case of loss the entry will be reversed.
(ii) For writing off the profit on revaluation to all partners’ capital accounts (including the new partner):
Partners’ Capital Accounts (in the new ratio) Dr.
To Memorandum P& L. Adjustments A/c
In case of loss the entry will be reversed.