Question

Mitu and Ritu are partners sharing profits and losses in the ratio of 2 : 3. An extract of their Balance Sheet as at 31^st March, 2023, is given below:

Balance Sheet of Mitu and Ritu (an extract) As at 31st March, 2023
Liabilities	(₹)	Assets	(₹)
Workmen Compensation Reserve	30,000	Investments (Market Value ₹ 76,000)	80,000
General Reserve	40,000	Sundry Debtors	1,00,000
Investment Fluctuation Reserve	10,000	Profit and Loss A/c	55,000

On 1^st April, 2023, they admit Nitu as a new partner for `1/5` share in the profits on the following terms regarding the treatment of the reserves and the accumulated losses:

1. Accumulated losses, if any, to be written off.
2. A workmen compensation claim of ₹ 10,000 to be adjusted against the Workmen Compensation Reserve. The balance of the reserve is not to be distributed.
3. Any loss in the value of investments is to be adjusted against the Investment Fluctuation Reserve. The balance of the Investment Fluctuation Reserve is to be distributed.
4. Provision for doubtful debts to be created to the extent of 10% of the debtors from the General Reserve. The remaining amount in the General Reserve is to be distributed.

You are required to pass the necessary journal entries to record the above adjustments at the time of Nitu’s admission.

Answer 1

Journal Entries
Date	Particulars	L. F.	Dr. (₹)	Cr. (₹)
2023
April 1	Mitu’s Capital A/c   ...Dr.		22,000
	Ritu’s Capital A/c   ...Dr.		33,000
	To Profit and Loss A/c			55,000
	(Being accumulated losses written off)
April 1	Workmen Compensation Reserve A/c   ...Dr.		10,000
	To Claim on Workmen Compensation Reserve A/c			10,000
	(Being claim on workmen compensation reserve adjusted)
April 1	Nitu’s Current A/c   ...Dr.		4,000
	To Mitu’s Capital A/c			1,600
	To Ritu’s Capital A/c			2,400
	(Being adjustment entry for balance of Workmen Compensation Reserve which is not distributed)
April 1	Investment Fluctuation Reserve A/c   ...Dr.		10,000
	To Investments A/c			4,000
	To Mitu’s Capital A/c			2,400
	To Ritu’s Capital A/c			3,600
	(Being adjustment of loss in value of investment from reserve and distribution of balance)
April 1	General Reserve A/c   ...Dr.		40,000
	To Provision for doubtful debts A/c (1,00,000 × 10%)			10,000
	To Mitu’s Capital A/c			12,000
	To Ritu’s Capital A/c			18,000
	(Being creation of provision for doubtful debts from general reserve and distribution of balance)

Working Note:

Balance in Workmen Compensation Reserve (30,000 − 10,000)

= ₹ 20,000

Nitu’s share of Reserve = `20,000xx1/5`

= ₹ 4,000