Accountancy Part AReconstitution of Partnership Firm: Retirement and Death

S, B and T share profits and losses in the ratio of 3:2:1. On Jan. 1,…

S, B and T share profits and losses in the ratio of 3:2:1. On Jan. 1, 2025. S and B agreed to share profit/losses equally on retirement of T. On this date:

1. Book value of land and building and furniture was Rs. 2,60,000 and Rs. 60,000 respectively and were revalued at Rs. 3,00,000 and Rs. 50,000 respectively;

2. Rs. 4,000 included in creditors was not likely to be paid;

3. Rs. 1,000 required for bad debt reserve.

Calculate the revaluation profit or loss from the above information.

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Profit- Rs. 33,000

On revaluation, every gain (an asset rising or a liability falling) is credited and every loss (an asset falling or a liability rising) is debited to the Revaluation Account.

Land and building: Rs. 3,00,000 − Rs. 2,60,000 = Rs. 40,000 gain
Furniture: Rs. 60,000 − Rs. 50,000 = Rs. 10,000 loss
Creditors not likely to be paid: Rs. 4,000 gain (a liability falls)
Reserve for bad debts: Rs. 1,000 loss
Net = Rs. 40,000 + Rs. 4,000 − Rs. 10,000 − Rs. 1,000 = Rs. 33,000 profit

NCERT (2026-27 edition):
Adjustment for Revaluation of Assets and Liabilities – “At the time of retirement or death of a partner there may be some assets which may not have been shown at their current values. Similarly, there may be certain liabilities which have been shown at a value different from the obligation to be met by the firm. Not only that, there may be some unrecorded assets and liabilities which need to be brought into books. As learnt in case of admission of a partner, a Revaluation Account is prepared in order to ascertain net gain (loss) on revaluation of assets and/or liabilities and bringing unrecorded items into firm’s books and the same is transferred to the capital account of all partners including retiring/deceased partners in their old profit sharing ratio.”