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

Answer 1

The Correct Option is C

When a new partner is admitted to the partnership firm, any reserves and surplus in the firm's balance sheet, like the Workmen Compensation Reserve, need to be addressed as they pertain to profits reserved from the old partners' profits. If there is no specific claim against the Workmen Compensation Reserve, it is redistributed. Here's the logic to determine how it is adjusted: 

1. All existing reserves and surpluses in the balance sheet are profits earned before the admission of the new partner.
2. These are attributable solely to the old partners, accumulated before the new partner's tenure.
3. If no claim exists against the reserve, the amount is adjusted towards old partners' capital accounts before the new partner shares the profits.
4. The correct treatment is to debit the Workmen Compensation Reserve and credit the individual capital accounts of the old partners.

The correct option is: Debited to old partners' capital account

Answer 2

When a partner is admitted into the firm, the workmen's compensation reserve is adjusted if there is no outstanding claim against it. In the case where there is no claim, the amount in the reserve is debited to the old partners' capital accounts. This adjustment is made in the ratio of the old partners' profit-sharing ratio, as it is part of the reserve that was previously accumulated for the benefit of the old partners.

Let’s break down the options:

(3) debited to old partners' capital account:
This is the correct answer. When there is no claim against the Workmen's Compensation Reserve, the balance is transferred to the old partners' capital accounts. This amount is debited to their capital accounts in the old profit-sharing ratio.

(2) credited to all partners' capital accounts:
This is incorrect because the reserve is only debited to the old partners’ capital accounts, not to all partners. The new partner does not get a share of this reserve.

(1) credited to old partners' capital accounts:
This option is also incorrect because the amount in the Workmen's Compensation Reserve is debited (not credited) to the old partners' capital accounts when there is no claim.

(4) debited to all partners' capital accounts:
This is incorrect for the same reason as option (2). The adjustment is made to the old partners' capital accounts only, not to the new partner's account.

Thus, the correct answer is:

(3) debited to old partners' capital account.