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Accounting Treatment of Workmen Compensation Reserve: Admission of a Partner

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Workmen Compensation Reserve is the reserve created out of profits to meet the needs of employees or workers. An amount is kept aside in the reserve in name of workers to meet the unforeseen situation. A claim can or cannot be made against this reserve. Accounting treatment differs for situations against the claim for Workmen Compensation Reserve. During the change in profit sharing ratio or reconstitution of the firm due to change in profit sharing ratio among existing partners, admission, retirement, death of partner, or dissolution of the partnership, the amount of Workmen Compensation Reserve is distributed among the partners in the old profit sharing ratio.

Accounting Treatment of Workmen Compensation Reserve:

Case 1: If there is no claim against Workmen Compensation Reserve:

 

Illustration 1: 

Meera and Niraj are partners sharing profit and loss in the ratio of 4:3. They admitted Pankaj as the new partner in the firm, and decided to share their future profit and loss in the ratio of 3:2:2. On the date, the Balance sheet showed Workmen Compensation Reserve at ₹ 21,000. Show the accounting treatment for the same.

Solution:

 

Illustration 2:

Gaurav and Harry are partners sharing profit and loss in the ratio of 3:2. They admitted Jack as the new partner in the firm, and decided to share their future profit and loss in the ratio of 2:2:1. On the date, the Balance sheet showed Workmen Compensation Reserve at ₹ 10,800. Show the accounting treatment for the same.

Solution:

 

Case 2: If the claim for Workmen Compensation is lower than the amount of Workmen Compensation Reserve:

A. Provision made for Workmen Compensation Reserve:

 

B. Unclaimed amount of Workmen Compensation Reserve transferred to partners Capital A/c:

 

Illustration 1:

Preet and Rani are partners sharing profit and loss in the ratio of 6:4. They decided to admit Seema as the new partner in the firm and share their future profit and loss in the ratio of 4:3:3. On the date Balance sheet showed Workmen Compensation Reserve at ₹ 24,800. There was a claim against Workmen Compensation Reserve for ₹19,300. Show the accounting treatment for the same.

Solution:

 

Illustration 2:

A and R are partners sharing profit and loss in the ratio of 2:1. They decided to admit M as the new partner in the firm and share their future profit and loss equally. On the date Balance sheet showed Workmen Compensation Reserve at ₹30,700. There was a claim against the Workmen Compensation Reserve of ₹23,200. Show the accounting treatment for the same.

Solution:

 

Case 3: If the claim for Workmen Compensation is equal to the amount of Workmen Compensation Reserve:

 

Illustration 1:

S and M are partners sharing profit and loss equally. They admitted K as the new partner in the firm, and decided to share their future profit in the ratio of 2:3. On the date, the Balance sheet showed Workmen Compensation Reserve at ₹ 14,300. There was a claim against Workmen Compensation Reserve for ₹14,300. Show the accounting treatment for the same.

Solution:

 

Illustration 2:

Kunal and Lauren are partners sharing profit and loss in the ratio of 5:4. They admitted Mayank as their new partner, and decided to share their future profit in the ratio of 4:3:2. On the date Balance sheet showed Workmen Compensation Reserve at ₹ 20,800. There was a claim against Workmen Compensation Reserve for ₹20,800. Show the accounting treatment for the same.

Solution:

 

Case 4: If the claim for Workmen Compensation is more than the amount of Workmen Compensation Reserve:

A. When the claim is more than the reserve:

 

B. When revaluation amount of claim is charged from Partner’s Capital Account:

 

Illustration 1:

S and B are partners sharing profit and loss in the ratio of 7:5. They decided to admit D as the new partner in the firm, and share their future profit in the ratio of 5:4:3. On the date, the Balance sheet showed Workmen Compensation Reserve at ₹ 8,600. There was a claim against Workmen Compensation Reserve for ₹15,800. Show the accounting treatment for the same.

Solution:

 

Illustration 2: 

Rocky and Mansi are partners sharing profit and loss in the ratio of 5:2. They decided to admit Simran as the new partner in the firm and share their future profit in the ratio of 3:2:1. On the date, the Balance sheet showed Workmen Compensation Reserve at ₹ 27,300. There was a claim against Workmen Compensation Reserve for ₹37,100. Show the accounting treatment for the same.

Solution:

 


Last Updated : 05 Apr, 2023
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