Question

John and Sourabh were partners sharing Profit & Loss equally. They decided to share future Profit & Loss in the ratio 3 : 2. Their manager Arya met with an accident in the office itself and his claim for compensation amounted to ₹ 50,000. The firm had a Workmen Compensation Reserve of ₹ 80,000. Which of the following statement holds true at the time of reconstitution?

Options

• ₹ 50,000 will be provided as workmen claim out of Workmen Compensation Reserve and balance ₹ 30,000 will be distributed amongst partners in old ratio.

• ₹ 50,000 will be provided as workmen claim out of Workmen Compensation Reserve and balance ₹ 30,000 will be distributed amongst partners in new ratio.

• ₹ 50,000 will be provided as workmen claim out of Workmen Compensation Reserve and balance ₹ 30,000 will be credited to Revaluation Account.

• ₹ 50,000 will be provided as workmen claim out of Workmen Compensation Reserve and balance ₹ 30,000 will be carried forward in the books of the firm without any treatment.

Answer 1

₹ 50,000 will be provided as workmen claim out of Workmen Compensation Reserve and balance ₹ 30,000 will be distributed amongst partners in old ratio.

Explanation:

If actual liability is less than Workmen Compensation Reserve:

Excess Reserve = WCR − Actual Liability

The excess amount is distributed among old partners in the old ratio.

Application used for workman’s claim = ₹ 50,000 

Distributed in old ratio 1 : 1 = ₹ 30,000 (excess)

John gets ₹ 15,000

Sourabh gets ₹ 15,000