These are the options for the Question: X, Y and Z are partners sharing profits and losses in the ratio of 2: ae
1. They decided to share future profits in the ratio of 3: 2: 1 with effect from 1* April, 2022. At the time of change of profit sharing ratio, unrecorded furniture will be recorded in the books of Accounts by :
(A) Debiting it to Partners’ Capital Account
(B) Debiting it to Revaluation Account
(C) Crediting it to Revaluation Account
(D) Crediting it to Partners’ Capital Account
The correct option is (C) Crediting it to Revaluation Account.
When there is a change in profit sharing ratio, revaluation of assets and liabilities is done to adjust their values to their current market value. In this case, the unrecorded furniture should be included in the revaluation process and its value should be credited to the Revaluation Account. This will result in an increase in the total value of assets and a corresponding increase in the partners’ capital.
Option (A) Debiting it to Partners’ Capital Account is incorrect because the value of the unrecorded furniture needs to be added to the total assets and not to the partners’ capital directly.
Option (B) Debiting it to Revaluation Account is also incorrect because the unrecorded furniture is an asset and should be recorded on the credit side of the Revaluation Account.
Option (D) Crediting it to Partners’ Capital is incorrect because the value of the unrecorded furniture needs to be added to the total assets and not to the partners’ capital directly.
