Page 113 - DEBKVOL-1

Chapter 5 Admission of a Partner 5.29
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Illustration 22 (Adjustment of Accumulated Profits and Losses).
A, B and C were partners in a firm sharing profits and losses in the ratio of 3 : 1 : 1. On
1st April, 2018, their Balance Sheet stood as:

BALANCE SHEET as at 1st April, 2018
Liabilities ` Assets `
Capital A/cs: Land and Building 1,50,000
A 1,00,000 Machinery 50,000
B 30,000 Furniture 10,000
C 20,000 1,50,000 Investments (Market value ` 28,000) 30,000
General Reserve 25,000 Current Assets 1,18,000
Profit and Loss A/c 35,000 Advertisement Suspense 25,000
Investments Fluctuation Reserve 20,000 (Deferred Revenue Expenditure)
Workmen Compensation Reserve 23,000
Employees’ Provident Fund 30,000
Creditors 1,00,000
3,83,000 3,83,000
They admitted D into partnership for 1/5th share of profits on the above date. A claim for
workmen compensation is estimated at ` 13,000.
Pass necessary Journal entries to adjust the accumulated profits and losses.
Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2018
April 1 Investments Fluctuation Reserve A/c ...Dr. 2,000
To Investments A/c 2,000
(Value of investments brought down to market value)
Workmen Compensation Reserve A/c ...Dr. 13,000
To Provision for Workmen Compensation Claim A/c 13,000
(Workmen compensation claim provided for)
General Reserve A/c ...Dr. 25,000
Profit and Loss A/c ...Dr. 35,000
Investments Fluctuation Reserve A/c ...Dr. 18,000
[` 20,000 – (` 30,000 – ` 28,000)]
Workmen Compensation Reserve A/c ...Dr. 10,000
(` 23,000 – ` 13,000)
To A’s Capital A/c 52,800
To B’s Capital A/c 17,600
To C’s Capital A/c 17,600
(Transfer of accumulated profits to old partners
in their old profit-sharing ratio)
A’s Capital A/c ...Dr. 15,000
B’s Capital A/c ...Dr. 5,000
C’s Capital A/c ...Dr. 5,000
To Advertisement Suspense A/c 25,000
(Transfer of accumulated losses to old partners in their
old profit-sharing ratio)
Notes:
1. Market value of investments is less than its Book Value by ` 2,000. This loss is met out of Investments
Fluctuation Reserve. After meeting the loss, remaining balance of Investments Fluctuation Reserve, i.e.,
` 18,000 is distributed among old partners in their old profit-sharing ratio.
2. Employees’ Provident Fund is a statutory liability and not a reserve.