ADMISSION OF PARTNER:
Treatment of Workmen’s Compensation Reserve/Workmen’s
Compensation Fund:
Treatment of Workmen's Compensation Fund/Reserve Workmen's Compensation Fund/
This is a Reserve is created to meet the liability on account of workmen's compensation
On admission of a new partner, if there is workmen's compensation claim, it will be set off from Workmen's Compensation Fund/Reserve.
The surplus of Workmen's Compensation Fund/Reserve (i.e. workmen's compensation fund reserve– workmen's compensation claim) will be distributed among the existing partners in their old profit sharing ratio, i.e. credited in their capital/current accounts.
Example: A and B are partners sharing profits and losses in the ratio of 3: 1. They admit C for 1/4th share in profits. On that date, Workmen's Compensation Fund stood in the Balance Sheet at 6,000.
Additional Information: Liability on account of Workmen's Compensation amounted to Rs. 2,000.
In this case, liability on account of Workmen's Compensation amounted to Rs. 2,000 will be set off from Workmen's Compensation Fund and the surplus of Workmen's Compensation Fund Rs.4,000 (i.e. Rs. 6000-2000) will be distributed among the existing partners in their old profit sharing ratio, 3: 1. The Following Journal Entry will be passed:
# Workmen’s Compensation claim Rs.2,000 will be shown on the liabilities side of the revised Balance Sheet.
In case there is no workmen's compensation claim, the total amount of Workmen's Compensation Fund will be distributed among existing partners in their old profit sharing ratio. In the above example, if there is no workmen compensation claim, the following Journal Entry will be passed:
In case, Workmen's Compensation claim exceeds Workmen's Compensation Fund, the excess amount of liability (i.e. Workmen's Compensation Claim - Workmen's Compensation Fund) will be debited to Revaluation Alc.
In our example, if Workmen's Compensation claim is Rs.7000,
the excess amount of liability Rs.1,000(i.e 7000-6000) will be debited to
Revaluation Account.The following Journal Entry will be passed:
Treatment of Investment Fluctuation Fund/Reserve
Investment Fluctuation Fund/Reserve is created to meet the loss on account of decrease in market value of investments made by the partnership firm, say in Shares in X Ltd., x % Govt. Bonds, etc.
Loss due to fall in market value of investments will be set off from Investment Fluctuation Fund/Reserve and the Surplus of Investment Fluctuation Fund/Reserve (i.e. Investment Fluctuation Fund Reserve - Decrease in market value of investments) will be distributed among the old partners in their old profit sharing ratio, i.e credited to their Capital/ Current Accounts.
Examples X and Y are partners sharing profits and losses in the ratio of 3: 1. They admit Z for 1/4th share.
On that date, Investment Fluctuation Fund stood in the Balance Sheet of Rs. 4,100.
Investments (shares in A limited) at Rs.7,000. Market value of investments is Rs.4,500.
In this case, decrease in value of investment Rs.2,500 (i.e. Rs.7000 – Rs. 4500) will be set off from Investment Fluctuation Fund.
The surplus of Investment Fluctuation Fund Rs.1,600 (i.e. Rs.4100- Rs. 2500) will be distributed among the existing partners in their old profit sharing ratio, 3: 1.
The following Journal Entry will be passed:
In case, there is no decrease in the value of investments,
the total amount of Investment Fluctuation Fund will be distributed among the
existing partners in their old profit sharing ratio.The following Journal Entry will be passed for the above
example:
In case, fall in value of investments exceeds Investment Fluctuation Fund, the excess amount of loss will be debited to Revaluation A/c:
Example: A and B are partners sharing profits and losses in the ratio of 3 :1. They admit C for 1/4th share. On that date, Investment Fluctuation Fund stood in the Balance Sheet of Rs. 5,000 and Investments (shares in B limited) at Rs.20,000. Market value of investments is Rs.12,000.
In this case, loss on account of fall in market value of investments is Rs. 8,000 (i.e Rs. 20000-12000), which is more than the amount of Investment Fluctuation Fund Rs.5,000. Therefore, the excess amount of loss Rs.3,000 (i.e. 8000-5000 will be debited to Revaluation Account. The following Journal Entry will be passed:
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