Question

Sudhir and Balbir were partners in a firm sharing profits and losses in the ratio of 5 : 4. The following is the extract of their Balance Sheet as at 31st March, 2024:
Balance Sheet of Sudhir and Balbir as at 31\textsuperscript{st March, 2024}

Liabilities	Amount (₹)	Assets	Amount (₹)
Investment Fluctuation Fund	15,00,000	Investments	75,00,000
Workmen Compensation Fund	50,00,000

On 1st April, 2024, Sushant was admitted as a new partner for \(\frac{1}{9}\)th share in the profits of the firm on the following terms:
(i) Market value of investments was ₹ 60,00,000.
(ii) Claim on account of Workmen Compensation was estimated at ₹ 41,00,000.
Pass necessary journal entries for treatment of Investment Fluctuation Fund and Workmen Compensation Fund on the date of Sushant’s admission.

Hint:

Always compare the liability with the fund balance to determine any excess for distribution.

Answer 1

\underline{Journal Entries:}
1. Investment Fluctuation Fund
Decrease in Investments: ₹ 75,00,000 - ₹ 60,00,000 = ₹ 15,00,000
The entire Investment Fluctuation Fund (IFF) has been utilized. As the decrease in investment value equals the IFF balance, no further journal entry is required.
No Journal Entry needed.
2. Workmen Compensation Fund
Excess fund: ₹ 50,00,000 – ₹ 41,00,000 = ₹ 9,00,000
Journal Entry:
Workmen Compensation Fund A/c Dr. ₹ 9,00,000
\hspace{1cm} To Sudhir’s Capital A/c ₹ 5,00,000
\hspace{1cm} To Balbir’s Capital A/c ₹ 4,00,000
(Excess Workmen Compensation Fund distributed in the old ratio of 5 : 4)