Unrecorded assets – Partnership Adjustments Part 1

ArticleVideo

Unrecorded Assets meaning

Unrecorded assets means that as of today or on the date of reconstitution of partnership firm the asset is having zero Book value. Unrecorded assets can be of two types :

Those assets which were not recorded in the books of accounts so now they have zero Book value
Those assets which were recorded in the books of accounts but now they are completely written off

Completely written off means that their Book value is fully transferred to profit and loss account and now such assets have zero Book value.

graph TD A[Unrecorded Assets] -->B[Not Recorded in Books] A -->C[Recorded, But now Fully Written Off] B --> D[Zero Book Value] C --> E[Initially Recorded] E --> F[Fully Written Off to P&L] F --> G[Zero Book Value] style A fill:#f9f,stroke:#333,stroke-width:4px style B fill:#bbf,stroke:#333,stroke-width:2px style C fill:#bbf,stroke:#333,stroke-width:2px style D fill:#fff,stroke:#333,stroke-width:2px style E fill:#fff,stroke:#333,stroke-width:2px style F fill:#fff,stroke:#333,stroke-width:2px style G fill:#fff,stroke:#333,stroke-width:2px

How adjustment given in the question

Unrecorded Investments of Rs 5,000 are to be accounted
Unrecorded Investments were valued at Rs 5,000
There is an unrecorded investment worth Rs 5,000
Investments of Rs 5,000 not mentioned in balance sheet were to be taken into account

There can be more variations. Whatever the language in question is, the adjustment will be done in similar manner as explained below

Understand the adjustment

We have some asset which is not having any book value. When we record it in books of accounts then the book value of the asset will increase from zero to the current market value as per question. Since there is increase in Book value of an asset so there will be profit on revaluation.

graph LR A[Asset with Zero Book Value] --> B[Recording Asset in Books] B --> C[Book Value Increases to Market Value] C --> D[Profit] style A fill:#ffcc00,stroke:#333,stroke-width:2px style B fill:#00cc66,stroke:#333,stroke-width:2px style C fill:#66ccff,stroke:#333,stroke-width:2px style D fill:#ccff66,stroke:#333,stroke-width:2px

Unrecorded Assets Journal Entry

Respective Asset A/c Dr..
- To Revaluation A/c

Since there is increase in asset value so the asset account will get debited. In our example Investments account will be debited.

Since we have profit so revaluation account will gets credited.

Unrecorded Assets in Revaluation Account

Particulars	Amount	Particulars	Amount
		By Unrecorded Asset A/c	5000

Since there is profit so it will be shown on credit side of revaluation account. Replace the unrecorded asset by the name of asset as per question. In our example we will write 'By Investments A/c' on credit side.

graph LR A[Revaluation Account] --> B[Credit Side] B --> C[Profit] C --> D[Market Value - Zero Book Value] A --> E[Debit Side] E --> F[No Entry] style A fill:#66ccff,stroke:#333,stroke-width:2px style B fill:#ccff66,stroke:#333,stroke-width:2px style C fill:#ffcc00,stroke:#333,stroke-width:2px style D fill:#fff,stroke:#333,stroke-width:2px style E fill:#ff6666,stroke:#333,stroke-width:2px style F fill:#fff,stroke:#333,stroke-width:2px

Unrecorded Assets in Balance Sheet

Liabilities	Amount	Assets	Amount
		Unrecorded Asset	+5000

In our example the value of investments will increase by Rs 5,000. Increase the value of respective unrecorded asset as per question. In our example we will increase the value investments by Rs 5000.

graph LR A[Balance Sheet] --> B[Assets] B --> C[Investments] C --> D[Increased by Rs 5,000] A --> E[Liabilities] E --> F[No Change] style A fill:#66ccff,stroke:#333,stroke-width:2px style B fill:#ccff66,stroke:#333,stroke-width:2px style C fill:#ffcc00,stroke:#333,stroke-width:2px style D fill:#fff,stroke:#333,stroke-width:2px style E fill:#ff6666,stroke:#333,stroke-width:2px style F fill:#fff,stroke:#333,stroke-width:2px

Unrecorded Assets in Partner Capital A/c

There will be no impact of this adjustment in the partner capital account.

Finally

We have taken the example of Investments but in the question adjustment can come for any other asset also like building, machinery, Etc. The treatment will be same as explained above. Just replace Investments by the name of asset as given in the question.

The adjustment will be done in a similar manner whether you are doing admission, retirement, death or change in profit ratio question.

graph LR subgraph Meaning M[Unrecorded Asset] --> M1[Asset never recorded] M --> M2[Asset recorded but completely written off] end B[Journal Entry Unrecorded Asset A/c Dr To Revaluation A/c Cr] C[Revaluation A/c Credit Side: By Unrecorded Asset A/c] D[Capital A/c No Impact] E[Balance Sheet Asset Side: Unrecorded Asset] Meaning --> B B --> C C --> D D --> E style Meaning fill:#e6f3ff,stroke:#3399ff style B fill:#ffe6e6,stroke:#ff6666 style C fill:#e6ffe6,stroke:#66cc66 style D fill:#fff0e6,stroke:#ff9933 style E fill:#f3e6ff,stroke:#9933ff style M fill:#ffffff,stroke:#3399ff style M1 fill:#ffffff,stroke:#3399ff style M2 fill:#ffffff,stroke:#3399ff