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Treatment of accumulated profits and losses
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Class XII Accountancy
Unit : PartnershipChapter : Admission of Partner
By Mamta Narula
Treatment of Accumulated profits and Accumulated losses
Topics to be covered
Workmen compensation Fund Investment Fluctuation Fund
Treatment ofAccumulated profits and Accumulated losses
Liabilities Amount Assets Amount
P & L Account (Cr. Balance)General ReserveContingency ReserveWorkmen compensation FundInvestment Fluctuation Fund
******************************
P & L Account (Dr. Balance)Deferred Revenue Expenditure
************
Balance Sheet
Treatment ofAccumulated profits and Accumulated losses
Accumulated Profits
• Credited in the old partner’s capital
Accumulated
Losses
• Debited in the old partner’s capital
InOld
Ratio
Liabilities Amount Assets Amount
P & L Account (Cr. Balance)General ReserveContingency ReserveWorkmen compensation FundInvestment Fluctuation Fund
******************************
P & L Account (Dr. Balance)Deferred Revenue Expenditure
************
Balance Sheet
Particulars Amount Particulars Amount
P & L Account (Dr. Balance)Deferred Revenue Expenditure
******************************
P & L Account (Cr. Balance)General ReserveContingency ReserveWorkmen compensation FundInvestment Fluctuation Fund
******************************************
Partner’s Capital AccountsDr. Cr.
Journal Entries
For distribution of undistributed profit and reserve.
For distribution of loss
Reserves A/c DrProfit & Loss A/c(Profit) Dr.
To Old Partner’s Capital A/c[individually]
Old Partner’s Capital A/c Dr. [individually]To Profit and Loss A/c [Loss]
InOld
Ratio
Mohan and Sohan are partners sharing profit in the ratio of 2:1. On 1st April2013 they admit Meena as new partner for 1/4 shares in profits. On that date the balance sheet of the firm shows a balance of Rs.30,000 in general reserve and debit balance of Profit and Loss A/c of Rs.6,000. Make the necessary journal entries.
Mohan Sohan
Meena
Profit sharing ratio 2:1
Journal EntriesFor distribution of general reserve For distribution of Profit and Loss A/c
Reserves A/c Dr 30,000To Mohan’s Capital A/c 20,000To Sohan’s Capital A/c 10,000
Mohan’s Capital A/c 4,000Sohan’s Capital A/c 2 ,000
To Profit and Loss A/c 6,000
Liabilities Amount Assets Amount
General Reserve 30,000************************
P & L Account (Dr. Balance) 6000******
Balance Sheet
Treatment ofWorkmen Compensation Fund
Workmen compensation
Fund is made to face the loss due to
payment of compensation due to injury suffered by worker during
work
Treatment ofWorkmen Compensation Fund
Different
Cases
Claim
Is
40,000
Claim
Is
70,000
There is
no
Claim
Claim
Is
1,00,000
Particulars Amount Assets Amount
Workmen compensation Fund 70,000
Mohan and Sohan are partners sharing profit in the ratio of 2:1. On 1st April2013 they admit Meena as new partner for 1/4 shares in profits. On that date the balance sheet of the firm shows a balance of Rs.70,000 in workmen compensation fund .Make the necessary journal entries.
Mohan Sohan
Meena
Profit sharing ratio 2:1
Treatment of Workmen Compensation Fund
Case - 1 Claim
Is
40,000
Liabilities Amount Assets Amount
Workmen compensation Fund 70,000
Keep 40,000 aside
Distribute remaining among old partners in
old ratio
Case - 1 Claim
Is
40,000
Liabilities Amount Assets Amount
Workmen compensation Fund 70,000
Workmen compensation Reserves A/c Dr 70,000To claim for workmen compensation A/c 40,000To Mohan’s Capital A/c 20,000To Sohan’s Capital A/c 10,000
Journal Entries
Old partners Old
Ratio
Treatment of Workmen Compensation Fund
Case - 2 Claim
Is
70,000
Particulars Amount Assets Amount
Workmen compensation Fund 70,000
Keep 70,000 aside
Nothing is left to Distribute among old
partners
Case - 2 Claim
Is
70,000
Liabilities Amount Assets Amount
Workmen compensation Fund 70,000
Workmen compensation Reserves A/c Dr 70,000To claim for workmen compensation A/c 70,000
Journal Entries
Treatment of Workmen Compensation Fund
Case - 3 There
Is
No Claim
Liabilities Amount Assets Amount
Workmen compensation Fund 70,000
No need to Keep
Anything aside
Distribute whole amount among old partners in
old ratio
Case - 3 There
Is
No Claim
Liabilities Amount Assets Amount
Workmen compensation Fund 70,000
Workmen compensation Reserves A/c Dr 70,000To Mohan’s Capital A/c 46667To Sohan’s Capital A/c 23333
Journal Entries
Old partners Old
Ratio
Treatment of Workmen Compensation Fund
Case - 4 Claim
Is
1,00,000
Liabilities Amount Assets Amount
Workmen compensation Fund 70,000
Keep aside100,000
• Nothing is left to be distributed
• Old partner will have to bear loss of 30,000
Case - 4 Claim
Is
1,00,000
Liabilities Amount Assets Amount
Workmen compensation Fund 70,000
Workmen compensation Reserves A/c Dr 70,000Revaluation A/c Dr. 30,000
To claim for workmen compensation A/c 100,000
Mohan’s Capital A/c Dr. 20,000Sohan’s Capital A/c Dr. 10,000
To Revaluation 30,000
Journal Entries
Old partners Old
Ratio
Point to
remember Workmen Compensation Fund is used
WHEN
Claim on account of workmen compensation has arise
Claim for workmen Compensation is shown in
New Balance sheetLiability side
Treatment of Investment Fluctuation Fund
Investment
value
increases
Investment
value
decreases
Investment Fluctuation Fund is made to face the
loss due to decrease in value of Investment
Treatment of Investment Fluctuation Fund
Different
Cases
Market value of
Investment
Is
27,000
Market value of
Investment
Is
32,000
Market value of
Investment
Is
30,000
Liabilities Amount Assets Amount
Investment Fluctuation Fund 21,000 Investment 30,000
Treatment of Investment Fluctuation Fund
Case 1Market value of
Investment
Is
27,000
Liabilities Amount Assets Amount
Investment Fluctuation Fund 21,000 Investment 30,000
Don’t Worry
We haveArrangement
We will use 3,000 out of
21,000
Treatment of Investment Fluctuation Fund
Case 1Market value of
Investment
Is
27,000
Liabilities Amount Assets Amount
Investment Fluctuation Fund 21,000 Investment 30,000
What about
remaining 18,000 We will distribute
18,000 among old partners in old ratio
Case 1Market value of
Investment
Is
27,000
Liabilities Amount Assets Amount
Investment Fluctuation Fund 21,000 Investment 30,000
Investment Fluctuation Fund A/c Dr 21,000To Investment A/c 3,000To Mohan’s Capital A/c 12,000To Sohan’s Capital A/c 6,000
Journal Entries
Old partners Old
Ratio
Treatment of Investment Fluctuation Fund
Case 2Market value of
Investment
Is
32,000
Liabilities Amount Assets Amount
Investment Fluctuation Fund 21,000 Investment 30,000
No need to use
This fund
We will distribute 21,000 among old partner in old ratio
Case 2Market value of
Investment
Is
32,000
Liabilities Amount Assets Amount
Investment Fluctuation Fund 20,000 Investment 30,000
Investment Fluctuation FundA/c Dr 21,000To Mohan’s Capital A/c 14000To Sohan’s Capital A/c 7000
Journal Entries
Old partners Old
Ratio
Treatment of Investment Fluctuation Fund
Case 3Market value of
Investment
Is
30,000
Liabilities Amount Assets Amount
Investment Fluctuation Fund 21,000 Investment 30,000
What to do with this fund
We will distribute 21,000 among old partner in old ratio
Case 3Market value of
Investment
Is
30,000
Liabilities Amount Assets Amount
Investment Fluctuation Fund 21,000 Investment 30,000
Investment Fluctuation FundA/c Dr 21,000To Mohan’s Capital A/c 14000To Sohan’s Capital A/c 7000
Journal Entries
Old partners Old
Ratio
Point to
rememberInvestment Fluctuation Fund is used
WHEN
Market
value
Book
value
Market value of
Investment
Bookvalue of
Investment
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