A firm's balance sheet shows the following:
Workmen Compensation Reserve ₹70,000
Workmen Compensation claim ₹90,000
State the journal entry to be passed at the time of Reconstitution of firm.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) -
Workmen Compensation Reserve A/c Dr. ₹70,000
Revaluation A/c Dr. ₹20,000
To Workmen Compensation claim ₹90,000
Reserve = ₹70,000
Claim = ₹90,000
As reserve is less than claim so excess of claim(90,000 - 70,000) i.e. 20,000 is debited to revaluation account as it is a loss of firm.