treatment of workmen compensation reserve

asked Aug 7, 2014 in Partnership-Dissolution of a Partnership Firm by deepz (143 points) 16,945 views

1 Answer

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This is a free reserve created out of divisible profits. At the time of admission, change in profit sharing ratio, retirement or dissolution, if there are any liabilities against this reserve then first those liabilities should be adjusted against this reserve and the balance should be distributed among all the existing partners in their existing (old) profit sharing ratio. For example if there is a an amount of Rs.5000 laying in Workmen Compensation Reserve at the retirement of C (A,B and C share profits in the ratio 3:2:1) and in adjustments it is stated that there is a liability on account of workmen compensation amounting to Rs.2000. Then after adjusting Rs.2000 from the Workmen Compensation Reserve, Rs.3000 should be distributed among existing partners A, B and C in their existing profit sharing ratio (3:2:1).

answered Aug 7, 2014 by jbsclasses (3,971 points)