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Difficulty: MediumRevaluation of Assets and Liabilities

Ada and Bisi are partners sharing profits and losses in the ratio 3:23:2. On 1st April 2026, they agree to revalue the assets and liabilities of the firm prior to admitting a new partner. The books show: Building (book value ₦200,000\text{₦}200,000) revalued at ₦250,000\text{₦}250,000; Furniture (book value ₦80,000\text{₦}80,000) revalued at ₦70,000\text{₦}70,000; a new Provision for Doubtful Debts of ₦5,000\text{₦}5,000 is to be created; and an unrecorded liability for expenses of ₦15,000\text{₦}15,000 is to be recognized. What is Bisi's share of the revaluation profit or loss?

  1. ₦8,000\text{₦}8,000 profitAnswer
  2. B
    ₦12,000\text{₦}12,000 profit
  3. C
    ₦14,000\text{₦}14,000 profit
  4. D
    ₦18,000\text{₦}18,000 profit

Answer

Bisi's share of the revaluation profit is ₦8,000\text{₦}8,000 profit.
The net revaluation gain is calculated by taking the appreciation of the building (+₦50,000+\text{₦}50,000) and subtracting the depreciation of furniture (−₦10,000-\text{₦}10,000), the new provision for doubtful debts (−₦5,000-\text{₦}5,000), and the unrecorded liability (−₦15,000-\text{₦}15,000), giving a net profit of ₦20,000\text{₦}20,000. Bisi's ratio share is 25\frac{2}{5}, which equals ₦8,000\text{₦}8,000 profit.

Step-by-Step Solution

1
Calculate the revaluation gains and losses for each item
Increase in Building = ₦250,000−₦200,000=+₦50,000\text{₦}250,000 - \text{₦}200,000 = +\text{₦}50,000 (Gain); Decrease in Furniture = ���70,000−₦80,000=−₦10,000\text{���}70,000 - \text{₦}80,000 = -\text{₦}10,000 (Loss); Provision for Doubtful Debts = −₦5,000-\text{₦}5,000 (Loss); Unrecorded Liability = −₦15,000-\text{₦}15,000 (Loss).
Increases in assets are credited to the Revaluation Account as gains, whereas decreases in assets and increases in liabilities are debited as losses.
2
Determine the net revaluation profit or loss
Net Profit = ₦50,000−₦10,000−₦5,000−₦15,000=₦20,000\text{₦}50,000 - \text{₦}10,000 - \text{₦}5,000 - \text{₦}15,000 = \text{₦}20,000.
Summing up the revaluation credits and debits yields a net profit of ₦20,000\text{₦}20,000.
3
Apportion the net revaluation profit to Bisi using the old profit-sharing ratio
Bisi's share = 23+2×₦20,000=25×₦20,000=₦8,000\frac{2}{3+2} \times \text{₦}20,000 = \frac{2}{5} \times \text{₦}20,000 = \text{₦}8,000.
Revaluation gains and losses are credited/debited to existing partners in their old profit-sharing ratio.

Key Concept

Revaluation of Assets and Liabilities in Partnership Accounts
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Topics

Revaluation of Assets and Liabilities

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