Question

Amrita and Barkha are partners sharing profits in the ratio of 5 : 3. On 1st March, 2024 they admit Fiza as a new partner and the new ratio is agreed at 3 : 1 : 1. On this date their books show a ‘Workmen Compensation Reserve’ of ₹ 1,60,000. Partners do not want to alter the value of any item of Balance Sheet and want to record the effect of admission by passing an adjustment entry. You are required to pass the adjustment entry under the following alternative cases.

1. When there is no claim for Workmen Compensation.
2. When claim for Workmen Compensation is estimated at ₹ 40,000
3. When the claim for Workmen Compensation is estimated at ₹ 1,60,000.
4. When claim for Workmen Compensation is estimated at ₹ 3,00,000

Answer 1

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
i.	Fiza’s Capital A/c   ...Dr.		32,000
	To Amrita’s Capital A/c			4,000
	To Barkha’s Capital A/c			28,000
	(The adjustment for Workmen Compensation Reserve)
ii.	Fiza’s Capital A/c   ...Dr.		24,000
	To Amrita’s Capital A/c			3,000
	To Barkha’s Capital A/c			21,000
	(The adjustment for Workmen Compensation Reserve)
iii.	No adjustment entry is required.
iv	Amrita’s Capital A/c   ...Dr.		3,500
	Barkha’s Capital A/c   ...Dr.		24,500
	To Fiza’s Capital A/c			28,000
	(The adjustment for loss on Workmen Compensation Claim)

Working Note:

Calculate the sacrificing/gaining ratio:

Old Ratio of Amrita and Barkha = 5 : 3

New Ratio of Amrita, of Amrita of Barkha, and Fiza = 3 ∶ 1 ∶ 1

Sacrificing/Gaining Share = Old Share − New Share

Amrita’s Share = `5/8 - 3/5`

= `(5 xx 5)/(8 xx 5) - (3 xx 8)/(5 xx 8)`

= `25/40 - 24/40`

= `1/40` (Sacrifice)

Barkha’s Share = `3/8 - 1/5`

= `(3 xx 5)/(8 xx 5) - (1 xx 8)/(5 xx 8)`

= `15/40 - 8/40`

= `7/40` (Sacrifice)

Barkha’s Share = `1/5`

= `(1 xx 8)/(5 xx 8)`

= `8/40` (Gain)

i. The full reserve amount is available for adjustment.

Net amount to be adjusted = ₹ 1,60,000

Fiza = `1,60,000 xx 8/40`

= 32,000

Amrita = `1,60,000 xx 1/40`

= 4,000

Barkha = `1,60,000 xx 7/40`

= 28,000

ii. Net amount to be adjusted = Workmen Compensation Reserve − Claim
Net amount to be adjusted = ₹ 1,60,000 − ₹ 40,000

= ₹ 1,20,000.

Fiza = `1,20,000 xx 8/40`

= 24,000

Amrita = `1,20,000 xx 1/40`

= 3,000

Barkha = `1,20,000 xx 7/40`

= 21,000

iii. Net amount to be adjusted = Workmen Compensation Reserve − Claim
Net amount to be adjusted = ₹ 1,60,000 − ₹ 1,60,000

= ₹ 0.

iv. Net amount to be adjusted = Reserve − Claim = ₹ 1,60,000 − ₹ 3,00,000

= − ₹ 1,40,000

Fiza = `1,40,000 xx 8/40`

= 28,000

Amrita = `1,40,000 xx 1/40`

= 3,500

Barkha = `1,40,000 xx 7/40`

= 24,500