Comprehensive Accounting Notes: Revaluation, Capital Accounts, and Partnership Transactions

Initial Balance Sheet Analysis

• The balance sheet provided reflects the financial position of a partnership involving partners Adam, Salam, and the introduction of Rasool.
• Assets (Total: $208000$):     - Non-Current Assets (NCA):         - Machinery: $-40000$         - Land and Buildings: $-77000$         - Total NCA: $-117000$     - Current Assets (CA):         - Bank: $-44000$         - Sundry Debtors: $-30000$         - Stock: $-17000$         - Total CA: $-91000$
• Liabilities and Equity (Total: $208000$):     - Liabilities (Total Liabilities: $112000$):         - Sundry Creditors: $-80000$         - Bank Overdraft: $-30000$         - Provision for Outstanding Liability: $-2000$     - Capital / Equity (Total Equity: $96000$):         - Adam (Closing Balance): $-37600$         - Salam (Closing Balance): $-28400$         - Rasool (Closing Balance): $-30000$

Revaluation Account Workings

• Activity 2% Adjustments:     - Land and Buildings: There is an increase of $10\%$.         - Calculation: $70000 \times 10\% = 7000$         - This represents a profit on revaluation.     - Stock: There is a recorded loss of $-3000$.     - Provision for Outstanding Liability: There is a recorded loss of $-2000$.
• Revaluation Account (A/c) Structure:     - Debit Side (Losses):         - Stock: $-3000$         - Provision for Outstanding Liability: $-2000$     - Credit Side (Gains):         - Land and buildings: $-7000$     - Distribution of Revaluation Profit:         - Total Profit to be distributed: $7000 - (3000 + 2000) = 2000$         - Ratio used for distribution appears to be $3:2$.         - Adam's Share: $2000 \times \frac{3}{5} = 1200$         - Salam's Share: $2000 \times \frac{2}{5} = 800$     - Total Revaluation A/c Balance: $-7000$

Partners' Capital Accounts

• Adam's Capital Account:     - Opening Balance: $-40000$     - Add Revaluation Profit: $-1200$     - Add Goodwill: $-2400$     - Less Old Goodwill: $-6000$     - Closing Balance: $-37600$
• Salam's Capital Account:     - Opening Balance: $-30000$     - Add Revaluation Profit: $-800$     - Add Goodwill: $-1600$     - Less Old Goodwill: $-4000$     - Closing Balance: $-28400$
• Rasool's Capital Account:     - Cash/Bank (Investment): $-30000$     - Opening Balance: $-0$     - Closing Balance: $-30000$
• Total Summary Balances:     - Adam: $-37600$     - Salam: $-28400$     - Rasool: $-30000$

Journal Entries (Secondary Example)

• Entry for Revaluation Losses:     - Revaluation A/c (Debit): $-21000$     - Stock (Credit): $-8000$     - Furniture (Credit): $-6000$     - Machinery (Credit): $-3000$     - Outstanding Expenses (Credit): $-4000$
• Entry for Revaluation Gains:     - Investment (Debit): $-18000$     - Land and building (Debit): $-20000$     - Revaluation A/c (Credit): $-38000$
• Entry for Distribution of Revaluation Profit:     - Revaluation A/c (Debit): $-17000$     - Aseena's Capital (Credit): $-8500$     - Aysha's Capital (Credit): $-8500$
• Entry for New Capital Contribution:     - Cash/Bank A/c (Debit): $-20000$     - Salma Capital A/c (Credit): $-20000$