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Difficulty: EasyRevaluation of Assets and Liabilities

Tunde and Femi are partners in a firm sharing profits and losses equally. During a partnership revaluation, the value of Premises increased by ₦30,000\text{₦}30,000, Plant and Machinery decreased by ₦8,000\text{₦}8,000, and a Provision for Doubtful Debts of ₦3,000\text{₦}3,000 was created. What is Tunde's share of the revaluation profit in naira?

Answer: 9500 naira

Answer

Tunde's share of the revaluation profit is 9,500 naira.
The revaluation of assets and liabilities yields a total gain of ₦30,000\text{₦}30,000 (from Premises) and total losses of ₦11,000\text{₦}11,000 (₦8,000\text{₦}8,000 from Plant and Machinery plus ₦3,000\text{₦}3,000 for Provision for Doubtful Debts). Subtracting losses from gains gives a net revaluation profit of ₦19,000\text{₦}19,000. Sharing this equally between Tunde and Femi gives Tunde a ₦9,500\text{₦}9,500 share.

Step-by-Step Solution

1
Determine total revaluation gains and losses
Total Gain = ₦30,000\text{₦}30,000; Total Loss = ₦8,000+₦3,000=₦11,000\text{₦}8,000 + \text{₦}3,000 = \text{₦}11,000.
An increase in an asset value is credited to the Revaluation Account as a gain, while decreases in assets and creation of provisions are debited as losses.
2
Calculate net profit on revaluation
Net Revaluation Profit = ₦30,000−₦11,000=₦19,000\text{₦}30,000 - \text{₦}11,000 = \text{₦}19,000.
Net revaluation profit represents the excess of total revaluation gains over total revaluation losses.
3
Calculate Tunde's share of revaluation profit
Tunde's Share = ₦19,000×12=₦9,500\text{₦}19,000 \times \frac{1}{2} = \text{₦}9,500.
The net revaluation profit must be distributed between existing partners according to their agreed profit-sharing ratio (1:1).

Key Concept

Calculation and Apportionment of Revaluation Profit in Partnership Accounts
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Topics

Revaluation of Assets and Liabilities

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