Question

A and B are partners sharing profits and losses in the ratio of 3 : 2. They admitted C with effect from 1st April, 2021. The new profit-sharing ratio is agreed at 4 : 3 : 3. An extract of their Balance Sheet as at 31st March, 2021, is as follows: Liabilities ₹ Assets ₹ Workmen Compensation Reserve 90,000

Based on the above information, you are required to answer the following question:

If there is no other information in respect of Workmen’s Compensation Reserve:

Options

• Cr. A’s Capital A/c with ₹ 60,000 and B’s Capital A/c with ₹ 30,000

• Cr. A’s Capital A/c with ₹ 54,000 and B’s Capital A/c with ₹ 36,000

• Dr. A’s Capital A/c with ₹ 54,000 and B’s Capital A/c with ₹ 36,000

• Cr. A’s Capital A/c with ₹ 36,000 and B’s Capital A/c with ₹ 27,000, and C’s Capital A/c ₹ 27,000

Answer 1

Cr. A’s Capital A/c with ₹ 54,000 and B’s Capital A/c with ₹ 36,000

Explanation:

Total Workmen Compensation Reserve to be distributed = ₹ 90,000

Old Profit-Sharing Ratio = 3 : 2

A’s Share = `90,000 xx 3/5`

= 54,000

B’s Share = `90,000 xx 2/5`

= 36,000

The journal entry would involve debiting the Workmen’s Compensation Reserve account and crediting A’s and B’s Capital accounts.