At the time of admission of a new partner, in case there is no workmen's compensation claim, the total amount of workmen's compensation fund will be :-
At the time of admission of a new partner, in case there is no workmen's compensation claim, the total amount of workmen's compensation fund will be :-
Solution
The Workmen's Compensation Fund is a reserve created by old partners by sacrificing their profits in the old profit sharing ratio. This fund appears as a liability in the Balance Sheet to meet any future claims by workers.
When a new partner is admitted and there is no workmen's compensation claim, this means the liability no longer exists. The fund must now be returned to those partners who had originally sacrificed their profits to create it.
Journal Entry:
Workmen's Compensation Fund A/c Dr.
To Old Partners' Capital A/c (individually in old ratio)
The logic is simple: the old partners had reduced their profits in the old ratio to build this fund. Since there's no claim to pay, the entire amount belongs to them and must be returned in the same proportion they contributed.
The capital accounts of old partners will be credited because:
- They are receiving back what they had set aside earlier
- Credit to capital account increases their capital
The old profit sharing ratio is used because:
- The fund was created before the new partner joined
- The new partner has no claim over this reserve
- The sacrifice was made by old partners in their old ratio only
Correct Option: 1 - Credited to old partners' capital account in their old profit sharing ratio.
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