Question

Manu, Sonu, and Rahul were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 2. With effect from 1\textsuperscript{st April, 2023, they decided to share profits and losses in the future in the ratio of 3 : 2 : 1. Their Balance Sheet showed Workmen Compensation Reserve of ₹ 84,000. The claim on account of Workmen Compensation is estimated at ₹ 75,000. The journal entry to give effect to the above transaction will be:} \[ \begin{array}{|c|c|c|} \hline Date & Particulars & Dr Amount (₹) & Cr Amount (₹)
\hline \text{(A)} & \text{Workmen Compensation Reserve A/c} & 84,000 &
& \text{To Workmen Compensation Claim A/c} & & 75,000
& \text{To Manu’s Capital A/c} & & 4,000
& \text{To Sonu’s Capital A/c} & & 3,000
& \text{To Rahul’s Capital A/c} & & 2,000
\hline \text{(B)} & \text{Workmen Compensation Reserve A/c} & 84,000 &
& \text{To Workmen Compensation Claim A/c} & & 75,000
& \text{To Manu’s Capital A/c} & & 45,000
& \text{To Sonu’s Capital A/c} & & 30,000
& \text{To Rahul’s Capital A/c} & & 9,000
\hline \text{(C)} & \text{Manu’s Capital A/c} & 500 &
& \text{To Rahul’s Capital A/c} & & 500
\hline \text{(D)} & \text{Workmen Compensation Reserve A/c} & 75,000 &
& \text{To Manu’s Capital A/c} & & 45,000
& \text{To Sonu’s Capital A/c} & & 30,000
& \text{To Rahul’s Capital A/c} & & 9,000
\hline \end{array} \]

Hint:

Adjustments for goodwill and revaluation of assets/liabilities are made in the capital accounts based on the partners’ profit-sharing changes.

Answer 1

The journal entries are as follows: Journal Entry (A): Transfer Workmen Compensation Reserve to Workmen Compensation Claim. \[ \text{Workmen Compensation Reserve A/c} \, 84,000 \, \text{is transferred to the} \, \text{Workmen Compensation Claim } \] Journal Entry (B): Allocate the Workmen Compensation Claim among the partners in the new profit-sharing ratio (3:2:1). \[ \begin{array}{|c|c|c|} \hline Partner & Share of Workmen Compensation Claim (₹) & Ratio
\hline \text{Manu} & 45,000 & 3:6
\text{Sonu} & 30,000 & 2:6
\text{Rahul} & 9,000 & 1:6
\hline \end{array} \] Journal Entry (C): Adjust the difference in Manu’s and Rahul’s capital accounts based on the claim adjustment. \[ \begin{array}{|c|c|} \hline Partner & Adjustment Amount (₹)
\hline \text{Manu’s Capital A/c} & 500
\text{Rahul’s Capital A/c} & 500
\hline \end{array} \] Journal Entry (D): Further adjustments are made to balance the Workmen Compensation Reserve, reflecting the final allocation among the partners. \[ \begin{array}{|c|c|} \hline Partner & Adjustment Amount (₹)
\hline \text{Manu} & 45,000
\text{Sonu} & 30,000
\text{Rahul} & 9,000
\hline \end{array} \]