Question

X, Y and Z who are presently sharing profits and losses in the ratio of 5 : 3 : 2 decide to share future profits and losses in the ratio of 2 : 3 : 5. Give the journal entry to distribute Workmen Compensation Reserve of ₹ 1,20,000 at the time of change in profit-sharing ratio, when there is a claim of ₹ 80,000 against it.

Answer 1

Solution:

                                                   Journal  

Particulars                                                        Debit Rs.         Credit Rs.

Workmen Compensation Reserve A/c   Dr.    40,000

      To X's Capital A/c                                                               20,000

      To Y's Capital A/c                                                               12,000

       To Z's Capital A/c                                                               8,000

(Being adjustment of balance in workmen composition reserve account in old ratio)  

Working Notes:

Calculation of Share (Workmen Compensation Reserve)

Credited to X's share = 40,000 x $\frac{5}{10}$ = 20,000

Credited to Y's share = 40,000 x $\frac{3}{10}$ = 12,000

Credited to Z's share = 40,000  x $\frac{2}{10}$ = 8000