Question

Dhruv and Ansh are partners in a firm sharing profits and losses: Dhruv 75% and Ansh 25%. Their Balance Sheet as at 31st March, 2021 is given below: Balance Sheet of Dhruv and Ansh As at 31st March, 2021 Liabilities Amount (₹) Amount (₹) Assets Amount (₹) Amount (₹) Sundry Creditors   49,000 Cash   62,000 Workmen Comp. Reserve   5,000 Sundry Debtors 18,500 17,000 Capital A/c:   50,000 Less: Prov. for Doubtful Debts (1,500) Dhruv 30,000 Land and Building   25,000 Ansh 20,000           1,04,000     1,04,000 On 1st April 2021, Kavi is admitted as a new partner on the following terms: Land and building is found to be valued at 25% above cost. It is decided to bring it to its cost. Bad debts amounting to ₹ 1,800 are to be written off. The remaining debtors are good. Creditors include an amount of ₹ 5,000 received as commission from Amar. The necessary adjustment is required to be made. The liability on the Workmen’s Compensation Reserve is determined at ₹ 3,000. Kavi is to pay ₹ 15,000 to the existing partners as a premium for Goodwill for 20% of the future profits of the firm. He is also to bring in ₹ 25,000 as capital.

At the time of Kavi’s admission, the Workmen Compensation Reserve of:

Options

• ₹ 5,000 will be credited to the capital accounts of all the partners.

• ₹ 3,000 will be credited to the capital accounts of all the partners.

• ₹ 2,000 will be credited to the capital accounts of the old partners.

• ₹ 2,000 will be debited to the capital accounts of the old partners.

Answer 1

₹ 2,000 will be credited to the capital accounts of the old partners.

Explanation:

The original Workmen Compensation Reserve is ₹ 5,000, and the actual liability is ₹ 3,000. The surplus amount (₹ 5,000 − ₹ 3,000 = ₹ 2,000) represents undistributed profit belonging to the old partners (Dhruv and Ansh) and is therefore credited to their capital accounts in their old profit-sharing ratio.