Lesson Note on Partnership Account: Revaluation of Assets and New Balance Sheet for SSS 2

Class: Senior Secondary School 2 (SS2 / SSS2)
Term: 2nd Term
Week: 5
Age: 16 years
Duration: 45 minutes
Subject: Financial Accounting
Curriculum Theme: Nil
Previous Lesson: Partnership Account: Admission of New Partner and Goodwill.
Topic: PARTNERSHIP ACCOUNT
Subject Matter: Revaluation of assets (meaning, journal entries, preparation of revaluation account), preparation of new balance sheet

Specific Objectives

By the end of the lesson, pupils should be able to:

Cognitive Domain:

• Define revaluation of assets.
• Explain the purpose of revaluation in partnership accounts.
• State the journal entries required for various revaluation scenarios.
• Outline the steps for preparing a Revaluation Account.
• Describe how revalued figures impact the New Balance Sheet.

Affective Domain:

• Appreciate the importance of revaluation in maintaining accurate financial records.
• Demonstrate willingness to participate in practical exercises involving revaluation.

Psychomotor Domain:

• Prepare correct journal entries for revaluation of assets and liabilities.
• Construct a Revaluation Account accurately.
• Prepare a New Balance Sheet incorporating revalued figures.

Social Domain:

• Collaborate with peers to solve problems related to partnership revaluation.

Reference Materials

The following resources were used in planning this lesson:

• Senior Secondary Schools Education Curriculum
• State Unified Scheme of Work
• Simplified and Comprehensive Financial Accounting for Senior Secondary Schools by Akindele, O.S. & Omolehinwa, O.L.
• Essential Financial Accounting for Senior Secondary Schools by O.A. Longe
• Links for Reference materials: [Insert relevant educational links here]

Instructional Materials

The teacher will teach this lesson with the aid of:

• Charts showing formats of Revaluation Account and Balance Sheet.
• Flashcards of key terms like “Revaluation,” “Asset,” “Liability.”
• Marker board and markers.

Rationale for the Lesson

This lesson helps pupils understand how assets and liabilities are revalued in a partnership firm, which is important for accurate financial reporting, especially during changes in partnership structure. It enables pupils to prepare relevant accounts and financial statements correctly.

Prerequisite/Previous Knowledge

Pupils should have a basic understanding of partnership accounts, assets, liabilities, and the preparation of a simple Balance Sheet.

Lesson Content/Board Summary

PARTNERSHIP ACCOUNT: REVALUATION OF ASSETS

1. Meaning of Revaluation of Assets

Revaluation of assets refers to the process of adjusting the book values of assets and liabilities to their current market or fair values. This is usually done when there is a change in the partnership, such as admission of a new partner, retirement of an existing partner, or change in profit-sharing ratio.

2. Purpose of Revaluation

The revaluation of assets and liabilities is important for the following reasons:

• To ascertain the true financial position of the partnership.
• To ensure that incoming partners do not benefit from past accumulated profits or losses due to undervaluation/overvaluation of assets.
• To ensure outgoing partners receive their fair share of the firm’s assets and liabilities at their current values.
• To adjust assets and liabilities to their fair values before preparing a new balance sheet.

3. Journal Entries for Revaluation

A Revaluation Account (also known as Profit and Loss Adjustment Account) is opened to record all adjustments due to revaluation. The net effect (profit or loss) is then transferred to the partners’ capital accounts in their old profit-sharing ratio.

The following are common journal entries:

• Increase in value of an asset:

  Asset Account Dr.
  Revaluation Account Cr.

  (Being increase in value of asset)

• Decrease in value of an asset:

  Revaluation Account Dr.
  Asset Account Cr.

  (Being decrease in value of asset)

• Increase in value of a liability:

  Revaluation Account Dr.
  Liability Account Cr.

  (Being increase in value of liability)

• Decrease in value of a liability:

  Liability Account Dr.
  Revaluation Account Cr.

  (Being decrease in value of liability)

• Unrecorded Asset:

  Asset Account Dr.
  Revaluation Account Cr.

  (Being an unrecorded asset now recorded)

• Unrecorded Liability:

  Revaluation Account Dr.
  Liability Account Cr.

  (Being an unrecorded liability now recorded)

• Transfer of Profit on Revaluation: (If Credit side > Debit side of Revaluation Account)

  Revaluation Account Dr.
  Partners’ Capital/Current Accounts (Old Ratio) Cr.

  (Being profit on revaluation transferred to partners’ capital accounts)

• Transfer of Loss on Revaluation: (If Debit side > Credit side of Revaluation Account)

  Partners’ Capital/Current Accounts (Old Ratio) Dr.
  Revaluation Account Cr.

  (Being loss on revaluation transferred to partners’ capital accounts)

4. Format of Revaluation Account

The Revaluation Account is a nominal account prepared to determine the profit or loss arising from the revaluation of assets and liabilities.

REVALUATION ACCOUNT

Dr	₦	Cr	₦
To Assets (decrease in value)	XXX	By Assets (increase in value)	XXX
To Liabilities (increase in value)	XXX	By Liabilities (decrease in value)	XXX
To Unrecorded Liabilities	XXX	By Unrecorded Assets	XXX
To Partners’ Capital A/c (Profit on Revaluation)	XXX	By Partners’ Capital A/c (Loss on Revaluation)	XXX
Total	XXX	Total	XXX

5. Preparation of New Balance Sheet

After revaluation, a new Balance Sheet is prepared showing the assets and liabilities at their revalued figures. The partners’ capital accounts will also reflect the profit or loss from revaluation.

6. Worked Example 1: Journal Entries and Revaluation Account

A and B are partners sharing profits and losses in the ratio 3:2. On 31st December 2023, they decided to revalue their assets and liabilities. The following adjustments were made:

• Land increased in value by ₦50,000.
• Machinery decreased in value by ₦20,000.
• Creditors were found to be overstated by ₦10,000.
• An unrecorded asset (Office Furniture) of ₦5,000 was discovered.

Required: Pass the necessary journal entries and prepare the Revaluation Account.

Journal Entries:

Step 1: Record increases in assets and decreases in liabilities.

Land A/c Dr. ₦50,000
Revaluation A/c Cr. ₦50,000
(Being increase in value of Land)

Creditors A/c Dr. ₦10,000
Revaluation A/c Cr. ₦10,000
(Being decrease in value of Creditors)

Office Furniture A/c Dr. ₦5,000
Revaluation A/c Cr. ₦5,000
(Being an unrecorded asset now recorded)

Step 2: Record decreases in assets and increases in liabilities.

Revaluation A/c Dr. ₦20,000
Machinery A/c Cr. ₦20,000
(Being decrease in value of Machinery)

Step 3: Calculate and transfer profit or loss on revaluation.

Revaluation Account:

Dr	₦	Cr	₦
To Machinery	20,000	By Land	50,000
To Partners’ Capital A/c:		By Creditors	10,000
A (3/5 x ₦45,000)	27,000	By Office Furniture	5,000
B (2/5 x ₦45,000)	18,000
Total	65,000	Total	65,000

Note: Profit on Revaluation = (₦50,000 + ₦10,000 + ₦5,000) – ₦20,000 = ₦45,000.

Revaluation Account Dr. ₦45,000
A’s Capital A/c Cr. ₦27,000
B’s Capital A/c Cr. ₦18,000
(Being profit on revaluation transferred to partners’ capital accounts in 3:2 ratio)

7. Worked Example 2: New Balance Sheet (Extract)

Using the revalued figures from Example 1, assuming the old Balance Sheet showed Land at ₦200,000, Machinery at ₦150,000, Creditors at ₦80,000, and no Office Furniture.

Required: Show how these items would appear in the New Balance Sheet (Extract).

New Balance Sheet (Extract) as at 31st December 2023

Step 1: Update asset values.

Assets	₦
Land (₦200,000 + ₦50,000)	250,000
Machinery (₦150,000 – ₦20,000)	130,000
Office Furniture	5,000

Step 2: Update liability values.

Liabilities	₦
Creditors (₦80,000 – ₦10,000)	70,000

Step 3: Update partners’ capital accounts (if initial capital was given, add profit/subtract loss).

Note: The new balance sheet will show the assets and liabilities at these revised figures, and the partners’ capital accounts will reflect the profit or loss from revaluation.

Teaching Methods/Instructional Techniques

Discussion, Lecture, Demonstration, Question and Answer, Visual Aids

Instructional Procedures

Step 1: Introduction

Time: 5 minutes
Teaching Skill: Set Induction
Teacher’s Activity: The teacher asks pupils to recall what they understand by assets and liabilities in a business. The teacher then asks why a business might want to know the current value of its assets.
Pupils’ Activity: Pupils respond to the questions, linking assets and liabilities to business ownership and discussing reasons for valuing them.
Learning Point: Pupils recall prior knowledge of assets and liabilities and are introduced to the concept of valuing them.

Step 2: Meaning and Purpose of Revaluation of Assets

Time: 8 minutes
Teaching Skill: Explanation/Definition
Teacher’s Activity: The teacher explains the meaning of revaluation of assets and its purpose in partnership accounts, using simple examples.
Pupils’ Activity: Pupils listen attentively, ask questions for clarification, and take notes.
Learning Point: Pupils understand the definition and importance of revaluation of assets.

Step 3: Journal Entries for Revaluation

Time: 10 minutes
Teaching Skill: Demonstration/Explanation
Teacher’s Activity: The teacher explains and demonstrates how to make journal entries for various revaluation scenarios (increase/decrease in assets/liabilities, unrecorded items) using the board.
Pupils’ Activity: Pupils observe the journal entries, copy them, and participate in discussions on their application.
Learning Point: Pupils learn how to record revaluation adjustments in the journal.

Step 4: Preparation of Revaluation Account

Time: 7 minutes
Teaching Skill: Demonstration/Modelling
Teacher’s Activity: The teacher displays a chart showing the format of the Revaluation Account and explains how to post the journal entries into it, leading to the calculation of profit or loss on revaluation.
Pupils’ Activity: Pupils study the format, ask questions, and follow along as the teacher demonstrates posting.
Learning Point: Pupils understand the structure and preparation of the Revaluation Account.

Step 5: Preparation of New Balance Sheet

Time: 5 minutes
Teaching Skill: Explanation
Teacher’s Activity: The teacher explains how the revalued figures from the Revaluation Account are transferred to the new Balance Sheet and how partners’ capital accounts are affected.
Pupils’ Activity: Pupils listen and understand the impact of revaluation on the Balance Sheet.
Learning Point: Pupils understand how to incorporate revalued figures into the new Balance Sheet.

Step 6: Guided Practice/Worked Example

Time: 5 minutes
Teaching Skill: Guided Practice
Teacher’s Activity: The teacher guides pupils through a simple worked example on the board, covering journal entries and preparation of the Revaluation Account, encouraging their participation.
Pupils’ Activity: Pupils participate actively in solving the example, making suggestions, and correcting errors.
Learning Point: Pupils apply their knowledge to solve a practical problem.

Step 7: Evaluation/Review

Time: 5 minutes
Teaching Skill: Questioning/Assessment
Teacher’s Activity: The teacher evaluates the learning by asking the following questions:

1. What is meant by revaluation of assets?
2. State two reasons why revaluation of assets is carried out in a partnership.
3. Give the journal entry for an increase in the value of an asset.
4. How is the profit or loss on revaluation distributed among partners?

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Pupils demonstrate understanding of the lesson.

Step 8: Conclusion

Time: 5 minutes
Teaching Skill: Summarization
Teacher’s Activity: The teacher summarizes the key learning points on revaluation of assets, journal entries, and account preparation. The teacher then gives pupils an assignment to practice.
Pupils’ Activity: Pupils listen to the summary and copy the assignment.
Learning Point: Pupils reinforce their understanding and are given tasks for further practice.

Lesson Keywords

• Revaluation – The process of adjusting the book values of assets and liabilities to their current market or fair values.
• Assets – Resources owned by the business that have future economic value.
• Liabilities – Obligations of the business to pay an amount to others.
• Partnership – A business structure where two or more individuals manage and operate a business, sharing its profits or losses.
• Journal Entry – A record of a financial transaction in the accounting journal.
• Balance Sheet – A financial statement that reports a company’s assets, liabilities, and owner’s equity at a specific point in time.

Differentiation

For struggling learners, the teacher will provide simplified examples and one-on-one guidance during practice sessions. Advanced learners will be given more complex scenarios or asked to explain the implications of revaluation on different partnership agreements.

Note for teachers using this lesson plan

Ensure pupils have a solid grasp of basic journal entries and the T-account format before introducing revaluation. Emphasize the old profit-sharing ratio for distributing revaluation profit/loss. Use visual aids like charts for account formats to aid understanding. Encourage pupils to practice multiple examples to master the concept.