Based on following case, answer question.
Nayana and Arushi were partners sharing profit equally. Their Balance Sheet as at March 31, 2017 was as follows:
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Balance Sheet of Nayana and Arushi as on March 31,2017 |
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Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
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Capitals: Nayana 1,00,000 Arushi 50,000 Creditors Arushi’s Current account Workmen Cooperation Reserve Bank overdraft |
1,50,000 20,000 10,000 15,000 5,000 |
Bank
Debtors Stock Furniture Machinery Nayana’s current account |
30,000
25,000 35,000 40,000 60,000 10,000 |
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|
2,00,000 |
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2,00,000 |
The firm was dissolved on the above date:
(1) Nayana took over 50% of the stock at 10% less on its book value, and the remaining stock was sold at a gain of 15%. Furniture and Machinery realised for ₹30,000 and ₹50,000 respectively.
(2) There was an unrecorded investment which was sold for ₹34,000
(3) Debtors realised 90% only and ₹1,200 were recovered for bad debts written-off last year.
(4) There was an outstanding bill for repairs which had to be paid for ₹2,000
What will be the treatment of Workman Compensation Reserve at the time of dissolution?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Nayana's and Arushi's Capital A/c will be credited with ₹7,500 each and workmen Compensation account will be debited with ₹15,000.
Workmen compensation reserve is an accumulated reserve and there is no claim regarding it so it will be distributed between partners in their old ratio. As ratio is not given which means profits and losses are shared equally. So, the following journal entry is passed for this-
Workman Compensation Reserve A/c Dr. 15,000
To Nayana’s Current A/c 7,500
To Arushi’s Current A/c 7,500
(Compensation fund transferred to partners’ Current account)