Question

Manu, Sonu and Rahul were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 2. With effect from 1st April, 2023, they decided to share profits and losses 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{table}[h!] \centering \begin{tabular}{|c|l|c|c|} \hline Date & Particulars & Dr Amount (₹) & Cr Amount (₹)
\hline (A) & Workmen Compensation Reserve A/c & 84,000 & 75,000
& To Workmen Compensation Claim A/c & &
& To Manu’s Capital A/c & 4,000 &
& To Sonu’s Capital A/c & 3,000 &
& To Rahul’s Capital A/c & 2,000 &
\hline (B) & Workmen Compensation Reserve A/c & 84,000 & 75,000
& To Workmen Compensation Claim A/c & &
& To Manu’s Capital A/c & 4,000 &
& To Sonu’s Capital A/c & 3,000 &
& To Rahul’s Capital A/c & 2,000 &
\hline (C) & Manu’s Capital A/c & 500 & 500
& To Rahul’s Capital A/c & &
\hline (D) & Workmen Compensation Reserve A/c & 84,000 & 75,000
& To Workmen Compensation Claim A/c & &
& To Manu’s Capital A/c & 4,000 &
& To Sonu’s Capital A/c & 3,000 &
& To Rahul’s Capital A/c & 2,000 &
\hline \end{tabular} \caption{Journal Entry for Workmen Compensation Reserve} \end{table}

Hint:

In cases involving reserves and claims, the amount is distributed to the capital accounts of the partners according to the new profit-sharing ratio after the reserve is adjusted.

Answer 1

- The Workmen Compensation Reserve is debited to transfer the reserve to the Workmen Compensation Claim account. - The claim is distributed among the partners according to their new profit-sharing ratio. - The balance in the Workmen Compensation Reserve is credited to the capital accounts of the partners, based on their new profit-sharing ratio. The journal entry is as follows: \begin{center} \renewcommand{\arraystretch}{1.5} \begin{tabular}{|p{10cm}|r|r|} \hline Particulars & Dr Amount (₹) & Cr Amount (₹)
\hline Workmen Compensation Reserve A/c & 84,000 & --
To Workmen Compensation Claim A/c & -- & 75,000
To Manu’s Capital A/c (4/9 of ₹ 9,000) & -- & 4,000
To Sonu’s Capital A/c (3/9 of ₹ 9,000) & -- & 3,000
To Rahul’s Capital A/c (2/9 of ₹ 9,000) & -- & 2,000
\hline \end{tabular} \end{center}