Question

If there is no claim against Workmen Compensation Reserve, it is __________ at the time of admission of a partner
Fill in the blanks with the correct answer from the option given below

• A. Credited to old partners' capital accounts
• B. Credited to all partners' capital accounts
• C. Debited to old partners' capital account
• D. Debited to all partners' capital accounts

Answer 1

The Correct Option is C

Upon the admission of a new partner, existing reserves and surplus on the firm's balance sheet, such as the Workmen Compensation Reserve, require specific treatment. These represent profits accumulated from the contributions of the original partners. If there is no outstanding claim against the Workmen Compensation Reserve, it is redistributed among the existing partners. The adjustment process follows this logic:

1. All reserves and surpluses present on the balance sheet at the time of the new partner's admission represent profits earned prior to their entry.
2. These accumulated profits belong exclusively to the original partners, earned before the new partner joined.
3. In the absence of any claims against the reserve, the balance is allocated to the old partners' capital accounts before the new partner participates in profit sharing.
4. The appropriate accounting entry involves debiting the Workmen Compensation Reserve and crediting the individual capital accounts of the old partners.

The correct adjustment is:The Workmen Compensation Reserve is debited, and the old partners' capital accounts are credited.