Chapter 10 Partnership Revaluation

Notes to teachers

1 If students already understand when and why a partnership’s goodwill needs to be valued, it is not
difficult for them to understand when and why a partnership’s assets and liabilities need to be revalued.

2 In reality, only assets are to be revalued because their fair values are more likely to change over time.

3 Remind students of two things:

• Compare the fair value with the net book value (not the cost) of an asset in arriving at the gain or loss
on revaluation.
• Record the profit or loss shared on revaluation in the partners’ capital accounts instead of current
accounts.

4 The revalued amounts are usually shown in the books, but sometimes not. Students should learn about
both situations and their accounting treatments.

5 The topic of revaluation of goodwill has been added. It will be very complicated if no goodwill account
has been or will be opened. Teachers should spend some time explaining the adjustments required in
capital accounts.

6 This topic is sometimes complicated by errors being made in the books, a new partner who pays an
additional amount for his share of goodwill when admitted, an old partner who leaves some of his capital
balance as a loan to the new partnership when withdrawing, some capital balances being adjusted to an
arbitrary amount and so on.

Q1 If revaluation is not done immediately, any increase or decrease in the value of the old partnership’s net
assets will belong to the new partnership. When these net assets are later sold by the new partnership,
any increase or decrease in the value of the old partnership’s net assets will be realised and then shared
among the new partners in the new profit and loss sharing ratio. As a result, some partners in the new
partnership will gain from the increase in the value of net assets of the old partnership without having to
pay for it, while others will lose without being compensated.

Q2 (a) General Ledger

Revaluation
2011 $ 2011 $ $
Jan 1 Furniture and fittings Jan 1 Office equipment
($15,000 – $11,000) 4,000 ($46,000 – $45,000) 1,000
" 1 Inventories ($20,000 – $18,000) 2,000 " 1 Loss on revaluation —
" 1 Allowance for doubtful accounts 1,000 Capital: Wendy ( 23 ) 4,000
Capital: Yan ( 13 ) 2,000 6,000
7,000 7,000

126

3E,=,'E:(E.1-EE)OTJJ   63

 Capital: Wendy
2011 $ 2011 $
Jan 1 Revaluation — Share of loss 4,000 Jan 1 Balance b/f 30,000
" 1 Balance c/d 26,000
30,000 30,000

Capital: Yan
2011 $ 2011 $
Jan 1 Revaluation — Share of loss 2,000 Jan 1 Balance b/f 15,000
" 1 Balance c/d 13,000
15,000 15,000

(b) Wendy and Yan

Balance Sheet as at 1 January 2011
$ $ $
Cost/ Accumulated Net book
Non-current assets Valuation depreciation value
Office equipment 46,000 — 46,000
Furniture and fittings 11,000 — 11,000
57,000 — 57,000
Current assets
Inventory 18,000
Accounts receivable 20,000
Less Allowance for doubtful accounts (2,000) 18,000
Bank 13,000
49,000
Less Current liabilities
Accounts payable (24,000)
Net current assets 25,000
82,000
Financed by:
Capital account: Wendy 26,000
Yan 13,000 39,000
Current account: Wendy 23,000
Yan 20,000 43,000
82,000

Q3 (a) Workings: Revaluation Adjustment

Revaluation loss Revaluation loss Gain (loss) from
Partner Required adjustment
shared in old ratio shared in new ratio change in ratio
$ $ $ $
Wendy 2 1 1,000 Dr Capital: Wendy 1,000
3
4,000 2
3,000
Yan 1 1 (1,000) Cr Capital: Yan 1,000
3
2,000 2
3,000
6,000 6,000

General Ledger
Capital: Wendy
2011 $ 2011 $
Jan 1 Revaluation loss adjustment 1,000 Jan 1 Balance b/f 30,000
" 1 Balance c/d 29,000
30,000 30,000

127

3E,=,'E:(E.1-EE)OTJJ   63

 Capital: Yan
2011 $ 2011 $
Jan 1 Balance c/d 16,000 Jan 1 Balance b/f 15,000
" 1 Revaluation loss adjustment 1,000
16,000 16,000

(b) Wendy and Yan

Balance Sheet as at 31 January 2011
$ $ $
Accumulated Net book
Non-current assets Cost depreciation Value
Office equipment 65,000 20,000 45,000
Furniture and fittings 40,000 25,000 15,000
105,000 45,000 60,000
Current assets
Inventory 20,000
Accounts receivable 20,000
Less Allowance for doubtful accounts (1,000) 19,000
Bank 13,000
52,000
Less Current liabilities
Accounts payable (24,000)
Net current assets 28,000
88,000
Financed by:
Capital account: Wendy 29,000
Yan 16,000 45,000
Current account: Wendy 23,000
Yan 20,000 43,000
88,000

Q4 (a) When a goodwill account was opened:

Capital
Aaron Barry Cathy
2009 $ $ $
Jan 1 Goodwill 13,333 13,333 13,334*
2010
Jan 1 Goodwill 8,000 8,000 4,000
* Rounded-up figure

(b) When a goodwill account was not opened:

Workings:
(W1) Valuation of goodwill on 1 January 2009:
Goodwill shared Goodwill shared Gain (loss) from
Partner Required adjustment
in old ratio in new ratio change in ratio
$ $ $ $
Aaron 1 2 2,667 Dr Capital: Aaron 2,667
3
13,333 5
16,000
Barry 1 2 2,667 Dr Capital: Barry 2,667
3
13,333 5
16,000
Cathy 1 1 (5,334) Cr Capital: Cathy 5,334
3
13,334 5
8,000
40,000 40,000

128

3E,=,'E:(E.1-EE)OTJJ   63

 (W2) Valuation of goodwill on 1 January 2010:
Goodwill shared Goodwill shared Gain (loss) from
Partner Required adjustment
in old ratio in new ratio change in ratio
$ $ $ $
Aaron 2 1 6,000 Dr Capital: Aaron 6,000
5
24,000 2
30,000
Barry 2 1 6,000 Dr Capital: Barry 6,000
5
24,000 2
30,000
Cathy 1 (12,000) Cr Capital: Cathy 12,000
5
12,000 — —
60,000 60,000

Capital
Aaron Barry Cathy Aaron Barry Cathy
2009 $ $ $ 2009 $ $ $
Jan 1 Goodwill adjustment Jan 1 Goodwill adjustment
(W1) 2,667 2,667 — (W1) — — 5,334
2010 2010
Jan 1 Goodwill adjustment Jan 1 Goodwill adjustment
(W2) 6,000 6,000 — (W2) — — 12,000

Q5 (a) Jimmy, Sam and Steve

Balance Sheet as at 1 January 2011
$ $ $
Cost/ Accumulated Net book
Non-current assets Valuation depreciation value
Machinery 79,800 — 79,800
Motor vehicles 30,000 — 30,000
109,800 — 109,800
Current assets
Inventory 16,000
Accounts receivable 24,200
Cash and bank 34,300
74,500
Less Current liabilities
Accounts payable (19,100)
Net current assets 55,400
165,200
Financed by:
Capital account: Jimmy 42,000
Sam 42,000
Steve 14,000 98,000
Current account: Jimmy 35,800
Sam 31,400 67,200
165,200

129

3E,=,'E:(E.1-EE)OTJJ   63

 (b) Jimmy, Sam and Steve
Balance Sheet as at 1 January 2011
$ $ $
Accumulated Net book
Non-current assets Cost depreciation value
Machinery 78,000 24,000 54,000
Motor vehicles 64,000 28,000 36,000
142,000 52,000 90,000
Current assets
Inventory 17,800
Accounts receivable 24,200
Cash and bank 34,300
76,300
Less Current liabilities
Accounts payable (19,100)
Net current assets 57,200
147,200
Financed by:
Capital account: Jimmy 34,800
Sam 34,800
Steve 10,400 80,000
Current account: Jimmy 35,800
Sam 31,400 67,200
147,200

Q6 Annual depreciation after revaluation = $9,000 ÷ 3 = $3,000

A1 Possible reasons are:

• Current accounts are usually opened to record recurrent items such as the profit or loss shared, the
amount of drawings made, interest on capital, interest on drawings and the salary to the partner. The
share of the profit or loss on revaluation is not a recurrent item.
• To discourage drawings, partners are only allowed to take out resources from their current accounts.
Revaluation profits or losses are not yet realised and therefore should not be taken out by the
partners. Therefore, the partners’ share of the profit or loss on revaluation should be recorded in
their capital accounts rather than their current accounts.

130

3E,=,'E:(E.1-EE)OTJJ   63

 ASSESSMENT

Application Problems
1 (a) Buildings
$ $
Balance b/f 80,000 Balance c/d 175,000
Revaluation — Increase 95,000
175,000 175,000

Motor Vehicles
$ $
Balance b/f 35,500 Revaluation — Reduction 9,500
Balance c/d 26,000
35,500 35,500

Inventory
$ $
Balance b/f 20,400 Revaluation — Reduction 1,500
Balance c/d 18,900
20,400 20,400

Office Fittings
$ $
Balance b/f 13,100 Revaluation — Reduction 2,200
Balance c/d 10,900
13,100 13,100

Revaluation
$ $ $
Motor vehicles ($35,500 – $26,000) 9,500 Buildings ($175,000 – $80,000) 95,000
Inventory ($20,400 – $18,900) 1,500
Office fittings ($13,100 – $10,900) 2,200
5
Capital: Tai ( 10 ) 40,900
3
Suen ( 10 ) 24,540
2
Chung ( 10 ) 16,360 81,800
95,000 95,000

131

3E,=,'E:(E.1-EE)OTJJ   63

 (b) Tai, Suen and Chung
Balance Sheet as at 1 January 2010
$ $
Non-current assets
Buildings 175,000
Motor vehicles 26,000
Office fittings 10,900
211,900
Current assets
Inventory 18,900
Accounts receivable 45,300
Bank 20,700
84,900
Less Accounts payable (6,800) 78,100
290,000
Capital
Tai ($95,600 + $40,900 + $18,000 (Workings)) 154,500
Suen ($64,200 + $24,540) 88,740
Chung ($48,400 + $16,360 – $18,000 (Workings)) 46,760
290,000

Workings: Goodwill Adjustment

Goodwill shared Goodwill shared Gain (loss) from
Partner Required adjustment
in old ratio in new ratio change in ratio
$ $ $ $
Tai 5 2 (18,000) Cr Capital: Tai 18,000
10
30,000 10
12,000
Suen 3 3 — —
10
18,000 10
18,000
Chung 2 5 18,000 Dr Capital: Chung 18,000
10
12,000 10
30,000
60,000 60,000

2 (a) Revaluation
$ $ $
Machinery ($39,800 − $37,000) 2,800 Premises ($300,000 − $115,600) 184,400
Motor vehicles ($68,100 − $64,000) 4,100 Goodwill 200,000
Fixtures ($15,400 − $12,000) 3,400
Inventory ($48,500 − $46,000) 2,500
Profit on revaluation —
4
Capital: Fung ( 10 ) 148,640
3
Kan ( 10 ) 111,480
3
Choi ( 10 ) 111,480 371,600
384,400 384,400

Capital
Fung Kan Choi Lee Fung Kan Choi Lee
$ $ $ $ $ $ $ $
Balances c/d 328,640 207,480 171,480 80,000 Balances b/f 180,000 96,000 60,000 —
Revaluation —
Share of profit 148,640 111,480 111,480 —
Bank — — — 80,000
328,640 207,480 171,480 80,000 328,640 207,480 171,480 80,000

132

3E,=,'E:(E.1-EE)OTJJ   63

 (b) Fung, Kan, Choi and Lee
Balance Sheet as at 1 April 2009
$ $
Non-current assets
Premises 300,000
Machinery 37,000
Motor vehicles 64,000
Fixtures 12,000 413,000
Goodwill 200,000
613,000
Current assets
Inventory 46,000
Accounts receivable 32,600
Bank ($23,400 + $80,000) 103,400
182,000
Less Accounts payable (7,400) 174,600
787,600
Capital: Fung 328,640
Kan 207,480
Choi 171,480
Lee 80,000
787,600

(c) If no goodwill account was opened, the partners’ capital balances would be adjusted for goodwill as
follows:
Goodwill shared Goodwill shared Gain (loss) from
Partner Required adjustment
in old ratio in new ratio change in ratio
$ $ $ $
Fung 4 4 (13,333) Cr Capital: Fung 13,333
10
80,000 12
66,667
Kan 3 3 (10,000) Cr Capital: Kan 10,000
10
60,000 12
50,000
Choi 3 3 (10,000) Cr Capital: Choi 10,000
10
60,000 12
50,000
Lee 2 33,333 Dr Capital: Lee 33,333
— — 12
33,333
200,000 200,000

At the same time, the profit on revaluation would be $171,600, shared by partners as follows:
4
Fung $68,640 ($171,600 × 10 )
3
Kan $51,480 ($171,600 × 10 )
3
Choi $51,480 ($171,600 × 10 )

The partners’ capital balances would become:

Fung $180,000 + $13,333 (Goodwill adjustment) + $68,640 (Share of revaluation profit) = $261,973
Kan $96,000 + $10,000 (Goodwill adjustment) + $51,480 (Share of revaluation profit) = $157,480
Choi $60,000 + $10,000 (Goodwill adjustment) + $51,480 (Share of revaluation profit) = $121,480
Lee $80,000 $33,333 (Goodwill adjustment) = $46,667

3X (a) (i) Goodwill

$ $
Balance b/f 20,000 Revaluation 20,000

133

3E,=,'E:(E.1-EE)OTJJ   63

 (ii) Revaluation
$ $ $
Goodwill 20,000 Plant and machinery
Inventory ($19,600 – $19,000) 600 ($20,000 – $18,000) 2,000
Loss on revaluation —
Capital: Au ( 35 ) 11,160
Bai ( 25 ) 7,440 18,600
20,600 20,600

(iii) Capital
Au Bai Chan Au Bai Chan
$ $ $ $ $ $
Revaluation — Share of loss 11,160 7,440 — Balances b/f 40,000 30,000 —
Balances c/d 28,840 22,560 20,000 Bank — — 20,000
40,000 30,000 20,000 40,000 30,000 20,000

(b) Au, Bai and Chan

Balance Sheet as at 1 January 2011
$ $
Non-current assets
Plant and machinery 20,000

Current assets
Inventory 19,000
Accounts receivable 21,300
Bank ($20,000 + $900) 20,900
61,200
Less Current liabilities
Accounts payable (9,800)
Net current assets 51,400
71,400
Capital: Au 28,840
Bai 22,560
Chan 20,000
71,400

(c) If revaluation is not carried out upon the admission of a new partner, any increase or decrease in the
value of the old partnership’s net assets will belong to the new partnership. When these net assets
are later sold by the new partnership, any increase or decrease in the value of the old partnership’s
net assets will be realised and then shared among all the partners (including the new ones) in the
new profit and loss sharing ratio. As a result, some partners in the new partnership will gain from the
increase in the value of old partnership’s net assets without having to pay for it, while others will lose
without being compensated.

4X (a) Revaluation
$ $ $
Inventory ($39,000 – $36,400) 2,600 Fixtures ($110,000 – $98,600) 11,400
Allowance for doubtful accounts 1,500 Goodwill (W1) 56,000
Profit on revaluation —
Capital: Au ( 35 ) 37,980
Tong ( 25 ) 25,320 63,300
67,400 67,400

134

3E,=,'E:(E.1-EE)OTJJ   63

 (b) Capital
Au Tong Chu Au Tong Chu
$ $ $ $ $ $
Goodwill (W1) 150,000 100,000 — Balances b/f 210,000 177,000 —
Balances c/d 97,980 102,320 — Revaluation —
Share of profit 37,980 25,320 —
247,980 202,320 — 247,980 202,320 —
Goodwill Balances b/d 97,980 102,320 —
adjustment (W2) — — 50,000 Bank — — 110,000
Balances c/d 122,980 127,320 60,000 Goodwill
adjustment (W2) 25,000 25,000 —
122,980 127,320 110,000 122,980 127,320 110,000

Workings:
(W1) Goodwill
$ $
Balance b/f 194,000 Capital: Au ( 35 ) 150,000
Revaluation 56,000 Tong ( 25 ) 100,000
250,000 250,000

(W2) Goodwill Adjustment

Goodwill shared Goodwill shared Gain (loss) from
Partner Required adjustment
in old ratio in new ratio change in ratio
$ $ $ $
Au 3 5 (25,000) Cr Capital: Au 25,000
5
150,000 10
125,000
Tong 2 3 (25,000) Cr Capital: Tong 25,000
5
100,000 10
75,000
Chu 2 50,000 Dr Capital: Chu 50,000
— — 10
50,000
250,000 250,000

5 (a) Chin and Woo

Income Statement for the year ended 31 March 2009 (extract)
$ $
Net profit for the year (W1) 26,600
Profit shared — Chin ( 25 ) 10,640
Woo ( 35 ) 15,960 26,600
$
(W1) Net profit as per trial balance 27,000
Add Drawings wrongly stated as salaries 3,500
30,500
Less Omission of allowance for doubtful accounts ($156,000 × 2 12 %) (3,900)
Corrected figure of net profit 26,600

(b) Revaluation
$ $ $
Motor vehicles ($210,000 − $190,000) 20,000 Premises ($500,000 − $430,000) 70,000
Inventory ($110,000 − $95,000) 15,000
Profit on revaluation —
Capital: Chin ( 25 ) 14,000
Woo ( 35 ) 21,000 35,000
70,000 70,000

135

3E,=,'E:(E.1-EE)OTJJ   63

 (c) Capital
Chin Woo Ho Chin Woo Ho
$ $ $ $ $ $
Goodwill adjustment (W2) — — 60,000 Balances b/f 380,000 320,000 —
Vehicle taken over 57,000 — — Revaluation —
Bank 200,000 33,000 — Share of profit 14,000 21,000 —
Current 510 — — Goodwill
Loan from Chin 184,490 — — adjustment (W2) 48,000 12,000 —
Balances c/d — 320,000 240,000 Bank — — 300,000
442,000 353,000 300,000 442,000 353,000 300,000

(W2) Goodwill Adjustment

Goodwill shared Goodwill shared Gain (loss) from
Partner Required adjustment
in old ratio in new ratio change in ratio
$ $ $ $
Chin 2 (48,000) Cr Capital: Chin 48,000
5
48,000 — —
Woo 3 1 (12,000) Cr Capital: Woo 12,000
5
72,000 2
60,000
Ho 1 60,000 Dr Capital: Ho 60,000
— — 2
60,000
120,000 120,000

Current
Chin Woo Ho Chin Woo Ho
$ $ $ $ $ $
Balance b/f 11,150 — — Balance b/f — 8,700 —
Drawings — 3,500 — Share of profit 10,640 15,960 —
Balance c/d — 21,160 — Capital 510 — —
11,150 24,660 — 11,150 24,660 —

(d) Woo and Ho

Balance Sheet as at 1 April 2009
$ $ $
Non-current assets
Premises 500,000
Motor vehicles ($190,000 − $57,000) 133,000
Fixtures 68,000
701,000
Current assets
Inventory 95,000
Accounts receivable 156,000
Less Allowance for doubtful accounts (3,900) 152,100
Bank (W3) 89,450
336,550
Less Current liabilities
Accounts payable (121,900)
Net current assets 214,650
915,650
Less Non-current liabilities
Loan: Chin ($150,000 + $184,490) (334,490)
581,160
Financed by:
Capital accounts
Woo 320,000
Ho 240,000 560,000
Current account
Woo 21,160
581,160

136

3E,=,'E:(E.1-EE)OTJJ   63

 $ $
(W3) Bank balance as per trial balance 22,450
Add Capital contibution from Ho 300,000
322,450
Less Payment to Woo 33,000
Payment to Chin 200,000 (233,000)
89,450

6X (a) (i) Revaluation

$ $ $ $
Premises ($680,000 × 20%) 136,000 Furniture and fixtures
Accounts receivable ($61,750 – $55,200) 6,550 ($146,000 – $132,000) 14,000
Inventory 4,600 Office equipment
($94,150 – $93,000) 1,150
Loss on revaluation —
Capital: Mak (13 ) 44,000
Yeung ( 13 ) 44,000
Wong ( 13 ) 44,000 132,000
147,150 147,150
Furniture and fixtures 14,000 Premises 136,000
Office equipment 1,150 Accounts receivable 6,550
Loss on revaluation reversed —
Capital: Mak ( 34 ) 95,550
Yeung ( 14 ) 31,850 127,400
142,550 142,550

(ii) Capital
Mak Yeung Wong Mak Yeung Wong
$ $ $ $ $ $
Revaluation — Balances b/f 400,000 300,000 280,000
Share of loss 44,000 44,000 44,000 Loss on revaluation
Current — — 7,400 reversed 95,550 31,850 —
Goodwill adjustment Goodwill adjustment
(Workings) 38,750 — — (Workings) — 7,750 31,000
Bank — — 51,920
Loan from Wong — — 207,680
Balances c/d 412,800 295,600 —
495,550 339,600 311,000 495,550 339,600 311,000

Workings: Goodwill Adjustment

Goodwill shared Goodwill shared Gain (loss) from
Partner Required adjustment
in old ratio in new ratio change in ratio
$ $ $ $
Mak 1 3 38,750 Dr Capital: Mak 38,750
3
31,000 4
69,750
Yeung 1 1 (7,750) Cr Capital: Yeung 7,750
3
31,000 4
23,250
Wong 1 (31,000) Cr Capital: Wong 31,000
3
31,000 — —
93,000 93,000

137

3E,=,'E:(E.1-EE)OTJJ   63

 (b) Mak and Yeung
Balance Sheet as at 1 January 2011
$ $
Non-current assets
Premises, net book value 680,000
Furniture and fixtures, net book value 132,000
Office equipment, net book value 93,000
905,000
Current assets
Inventory ($80,000 – $4,600) 75,400
Accounts receivable, net 61,750
Cash at bank ($64,150 – $51,920) 12,230
149,380
Less Current liabilities
Accounts payable (48,300)
Net current assets 101,080
1,006,080
Less Non-current liabilities
Loan: Wong (207,680)
798,400
Capital accounts
Mak 412,800
Yeung 295,600 708,400
Current accounts
Mak 54,400
Yeung 35,600 90,000
798,400

(c) This is probably because the partners want to follow the historical cost principle in the valuation of
assets. Valuation of inventories at the lower of cost and net realisable value is a common practice.
Refer to the prudence concept and its applications in Chapter 17 of Frank Wood’s Financial
Accounting 2.

7 (a)

The Journal

Date Details Dr Cr
2009 $ $
May 1 Store premises 60,000
Inventory 9,000
Capital: Au ($51,000 × 35 ) 30,600
But ($51,000 × 25 ) 20,400
Profit on revaluation credited to old partners’ capital accounts
in old profit and loss ratio.
" 1 Capital: Chak 6,000
Capital: Au 4,400
But 1,600
Adjustment for goodwill (see Workings).
" 1 Bank 24,000
Capital: Chak 24,000
Capital introduced by Chak.

138

3E,=,'E:(E.1-EE)OTJJ   63

 Workings: Goodwill Adjustment
Goodwill shared Goodwill shared Gain (loss) from
Partner Required adjustment
in old ratio in new ratio change in ratio
$ $ $ $
Au 3 5 (4,400) Cr Capital: Au 4,400
5
14,400 12
10,000
But 2 4 (1,600) Cr Capital: But 1,600
5
9,600 12
8,000
Chak 3 6,000 Dr Capital: Chak 6,000
— — 12
6,000
24,000 24,000

(b) Au, But and Chak

Income Statement for the year ended 31 December 2009 (extract)
$ $ $
Net profit (W1) 74,800
Less Appropriations:
Salary: Chak (W2) 20,000
Interest on capital: (W3)
Au 8,333
But 5,067
Chak 1,200 14,600 (34,600)
40,200
Balance of profit shared:
5
Au ( 12 ) 16,750
4
But ( 12 ) 13,400
3
Chak ( 12 ) 10,050 40,200

Workings:
4
(W1) $84,800 Chak’s salary for 4 months (Jan Apr) as store manager $10,000 ($30,000 × 12 )
= $74,800
8
(W2) Partner’s salary: Chak (May Dec) $30,000 × 12 = $20,000
4
(W3) Au: Interest before change ($60,000 × 10% × 12 ) + Interest after change [($64,400 + Profit on
8
revaluation $30,600) × 10% × 12 ] = $2,000 + $6,333 = $8,333
4
But: Interest before change ($36,000 × 10% × 12 ) + Interest after change [($37,600 + Profit on
8
revaluation $20,400) × 10% × 12 ] = $1,200 + $3,867 = $5,067
8
Chak: $18,000 × 10% × 12 = $1,200

8X (a) Revaluation
2010 $ $ 2010 $
Apr 1 Plant and machinery Apr 1 Land and buildings
($26,600 – $23,800) 2,800 ($98,000 – $87,500) 10,500
" 1 Fixtures and fittings " 1 Goodwill ($30,800 – $14,000) 16,800
($8,400 – $7,000) 1,400
" 1 Inventory
($8,750 – $8,330) 420
" 1 Profit on revaluation —
Capital: Joseph ( 45 ) 18,144
Raymond ( 15 ) 4,536 22,680
27,300 27,300

139

3E,=,'E:(E.1-EE)OTJJ   63

 (b) Goodwill
2010 $ 2010 $
Apr 1 Balance b/f 14,000 Apr 1 Balance c/d 30,800
" 1 Revaluation 16,800
30,800 30,800

(c) Capital
Joseph Raymond Joseph Raymond
2010 $ $ 2010 $ $
Apr 1 Balances c/d 130,144 67,536 Apr 1 Balances b/f 112,000 63,000
" 1 Revaluation —
Share of profit 18,144 4,536
130,144 67,536 130,144 67,536

(d) Joseph and Raymond

Balance Sheet as at 1 April 2010
$ $
Non-current assets
Land and buildings 98,000
Plant and machinery 23,800
Vans 28,000
Fixtures and fittings 7,000 156,800
Goodwill 30,800
187,600
Current assets
Inventory 8,330
Accounts receivable 13,300
Bank 5,250
26,880
Less Current liabilities
Accounts payable (10,500)
Net current assets 16,380
203,980
Less Non-current liabilities
Bank loan (4,200)
199,780

Financed by:
Capital
Joseph 130,144
Raymond 67,536 197,680
Current
Joseph 700
Raymond 1,400 2,100
199,780

Past Exam Questions

10 (a) (i) Revaluation Account
2005 $000 2005 $000
Jul 1 Office equipment 500 Jul 1 Stock 350
" 1 Provision for bad debts 480 " 1 Trade creditors 160
" 1 Loss on revaluation — Mr Lau ( 12 ) 235
Mr Wong ( 12 ) 235
980 980

140

3E,=,'E:(E.1-EE)OTJJ   63

 (ii) Partners’ Capital Accounts
Lau Wong Ma Lau Wong Ma
2005 $000 $000 $000 2005 $000 $000 $000
Jul 1 Goodwill Jul 1 Balances b/f 24,290 12,150 —
adjustment 200 200 200 " 1 Goodwill
" 1 Loss on adjustment 300 300 —
revaluation 235 235 — " 1 Delivery van — — 11,000
" 1 Balances c/d 24,155 12,015 11,425 " 1 Stock — — 375
" 1 Bank — — 250
24,590 12,450 11,625 24,590 12,450 11,625

(b) Partnership of Mr Lau, Mr Wong and Mr Ma

Balance Sheet as at 1 July 2005
$000 $000 $000
Fixed assets
Office equipment 12,000
Office furniture 11,600
Motor vehicles 11,000
34,600
Current assets
Stock ($7,500,000 + $375,000) 7,875
Trade debtors 9,600
Less Provision for bad debts ($9,600,000 × 5%) (480) 9,120
Bank ($1,050,000 + $250,000) 1,300
18,295
Less Current liabilities
Trade creditors (5,300)
Net current assets 12,995
47,595
Capital accounts
Mr Lau 24,155
Mr Wong 12,015
Mr Ma 11,425
47,595

(c) The valuation of goodwill occurs when there is a change in partnership.

Goodwill account is not maintained because:
• Goodwill is intangible
• Its valuation is subjective
• Future economic benefit is uncertain
(Any two points)

11X (a) (i) Revaluation Account

2007 $000 2007 $000
Apr 1 Office equipment Apr 1 Office furniture
($1,600,000 – $1,430,000) 170 ($1,700,000 – $1,350,000) 350
" 1 Motor vehicles " 1 Long-term investment
($1,110,000 – $800,000) 310 ($480,000 – $250,000) 230
" 1 Stock ($400,000 – $360,000) 40
" 1 Bad debts 6
" 1 Profit on revaluation —
Mr Lo ( 12 ) 27
Mr Tse ( 12 ) 27
580 580

141

3E,=,'E:(E.1-EE)OTJJ   63

 (ii) Goodwill Account
2007 $000 2007 $000
Apr 1 Capital accounts — Apr 1 Capital accounts —
Mr Lo ( 12 ) 100 Mr Lo ( 25 ) 80
Mr Tse ( 12 ) 100 Mr Tse ( 25 ) 80
Mr Hung ( 15 ) 40
200 200

(iii) Partners’ Capital Accounts

Lo Tse Hung Lo Tse Hung
2007 $000 $000 $000 2007 $000 $000 $000
Apr 1 Goodwill — Apr 1 Balance b/f 2,175 2,175 —
Adjustment " 1 Revaluation —
of goodwill 80 80 40 Profit on
" 1 Balance c/f 2,222 2,222 2,080 revaluation 27 27 —
" 1 Goodwill —
Adjustment
of goodwill 100 100 —
" 1 Cash — — 2,000
" 1 Motor vehicles — — 120
2,302 2,302 2,120 2,302 2,302 2,120

(b) Partnership of Mr Lo, Mr Tse and Mr Hung

Balance Sheet as at 1 April 2007
$000 $000
Fixed assets
Office furniture 1,700
Office equipment 1,430
Motor vehicles ($800,000 + $120,000) 920
4,050
Long-term investments
Investments in listed company’s shares, at cost 480

Current assets
Inventory 360
Trade debtors ($120,000 – $6,000) 114
Bank ($150,000 + $2,000,000) 2,150
2,624
Less Current liabilities
Trade creditors (630)
Net current assets 1,994
6,524
Financed by:
Capital account: Mr Lo 2,222
Mr Tse 2,222
Mr Hung 2,080
6,524

142

3E,=,'E:(E.1-EE)OTJJ   63