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 a claim for Workmen’s Compensation is estimated at ₹ 1,50,000:

Options

• Dr. C’s Capital with ₹ 60,000

• Dr. C’s Capital A/c with ₹ 18,000

• Dr. Workmen Compensation Reserve A/c with ₹ 90,000 and Revaluation A/c with ₹ 60,000

• Dr. Revaluation A/c with ₹ 60,000

Answer 1

Dr. Workmen Compensation Reserve A/c with ₹ 90,000 and Revaluation A/c with ₹ 60,000

Explanation:

When a liability (the claim) is greater than the specific reserve created for it, we first use the entire reserve amount to cover the claim. Any remaining excess liability is treated as a loss to the business at the time of partner admission and is recorded through the Revaluation Account.

Total Workmen’s Compensation Reserve available = ₹ 90,000

Estimated Claim = ₹ 1,50,000

Excess Liability (Loss) = 1,50,000 − 90,000

= ₹ 60,000