Question

X Y and Z are partners sharing profits and losses in the ratio 5 : 3: 2. They decide to share the future profits in the ratio 3 ; 2 : 1. Workmen compensation reserve appearing in the balance sheet on the date if no information is available for the same will be : (A)Distributed to the partners in old profit sharing ratio (B)Distributed to the partners in new profit sharing ratio (C)Distributed to the partners in capital ratio (D)Carried forward to new balance sheet without any adjustment​

Answer 1

The answer is (A) distributed to the partners in their old-profit sharing ratio.

Workmen Compensation Reserve is the reserve of compensation that is given to the partners from the organization's profits.

If no other additional information is given for the WCR [Workmen Compensation Reserve], it is distributed to the partners in their old-profit sharing ratio. The journal entry for it is as follows:

Workmen Compensation Reserve A/c ... Dr - Rs -/-

• To the old partners' capital A/cs - Rs -/-

(Being the workmen compensation reserve distributed to the partners in their old ratio.)

This means that X, Y and Z would get their reserve in the ratio 5:3:2.

The journal entry for the same would be as follows:

Workmen Compensation Reserve A/c ... Dr - Rs -/-

• To X's capital A/c - Rs -/-
• To Y's capital A/c - Rs -/-
• To Z's capital A/c - Rs -/-

(Being the workmen compensation reserve transferred to the partners in the ratio 5:3:2.)