Question

If there is no claim against Workmen Compensation Reserve, it is __________ at the time of admission of a partner
Fill in the blanks with the correct answer from the option given below

• A. Debited to old partners' capital account
• B. Credited to all partners' capital accounts
• C. Credited to old partners' capital accounts
• D. Debited to all partners' capital accounts

Answer 1

The Correct Option is C

Treatment of Workmen Compensation Reserve with No Claims 

The Workmen Compensation Reserve (WCR) is a reserve created by a company or partnership to provide funds to compensate employees (workmen) who suffer injuries or disabilities during their employment. This reserve is built up by setting aside a portion of the firm's profits.

Scenario: No Claim Against the Reserve

If, at a particular point in time (e.g., during a change in partnership, such as admission or retirement of a partner), there are no outstanding claims against the Workmen Compensation Reserve, the balance in the reserve is treated as a profit that can be distributed among the existing partners.

Accounting Treatment

When there is no claim against the Workmen Compensation Reserve, the following accounting treatment is applied:

1. The Workmen Compensation Reserve account is debited to close it out.
2. The Capital Accounts of the existing partners are credited in their old profit-sharing ratio.

Journal Entry

The journal entry for this transaction would be:

        

Workmen Compensation Reserve A/c     Dr.   (Amount of the Reserve)
To Partner A's Capital A/c          Cr.   (A's share of the reserve)
To Partner B's Capital A/c          Cr.   (B's share of the reserve)
To Partner C's Capital A/c          Cr.   (C's share of the reserve)
        

   

Rationale

The rationale behind this treatment is that the Workmen Compensation Reserve represents profits that were previously set aside. Since there are no claims against it, it's considered a surplus that should be distributed to the partners who contributed to its accumulation.

Answer 2

Workmen Compensation Reserve on Partner Admission 

If there is no claim against Workmen Compensation Reserve, it is:

• Action: Credited to old partners' capital accounts at the time of admission of a partner.

Note: This distribution reflects the old partners' share of the reserve before the new partner's admission.