Question

Vishal and Pulkit were partners in a firm sharing profits and losses in the ratio of 7:3. Following is the extract of their Balance Sheet as on 31st March, 2024. Liabilities: Investment Fluctuation Fund ₹ 5,00,000
Workmen Compensation Fund ₹ 25,00,000 Assets: Investments ₹ 50,00,000 On 1st April, 2024, Tarun was admitted for 1/10 share. (i) Market value of investments ₹ 44,00,000.
(ii) Claim for workmen compensation ₹ 25,00,000. Pass necessary journal entries.

Hint:

Always compare actual vs expected claim or loss when adjusting specific reserves like IFF or WCF.

Answer 1

Case 1: Investment Fluctuation Fund - Investments Book Value = ₹ 50,00,000 - Market Value = ₹ 44,00,000 - Resultant Loss = ₹ 6,00,000 - Investment Fluctuation Fund Balance = ₹ 5,00,000 Of the fund, ₹ 5,00,000 is applied, leaving a remaining loss of ₹ 1,00,000 to be allocated to partners’ capital accounts. Journal Entry:
Investment Fluctuation Fund A/c Dr. ₹ 5,00,000
To Revaluation A/c ₹ 6,00,000
To Partners’ Capital A/c ₹ 1,00,000 Case 2: Workmen Compensation Fund - Fund Balance = ₹ 25,00,000 - Estimated Claim = ₹ 25,00,000 The entire fund is utilized. There is no surplus or deficit. Journal Entry:
Workmen Compensation Fund A/c Dr. ₹ 25,00,000
To Workmen Compensation Liability A/c ₹ 25,00,000Final Answer: Adjustments for investment loss and employee claims are processed via the revaluation and liability accounts, respectively.