why (e) adjustment is not to taken in.revaluation.a/c with 750

Dear Student

Whenever Workmen Compensation Reserve is given in balance sheet and corresponding amount of Liability is to be created, then the amount equal to the amount of Liability to be created, is transferred to Revaluation account from Workmen’s Compensation Reserve account   . And the remaining workmen compensation reserve is transferred to Partner’s capital account .
In the above question the correct way of treatment for Workmen’s compensation Reserve and Creation of Liability would be as follows :
Journal in the books of Sunrise ltd.
Date Particulars L.F. Debit
  Workmen’s Compensation Reserve A/c Dr.   750  
    To Revalution A/c       750
  (Being the amount equal to workmens compensation liability is transferred to Revaluation)        
  Revaluation A/c Dr.   750  
    To Workmen’s Compensation Claim A/c       750
  (Being liability for claim created)        
  Workmen’s Compensation A/c Dr.   11,250  
    To X’s Capital A/c       5,625
    To Y’s Capital A/c       3,750
    To Z’s Capital A/c       1,875
  (Being Remaining reserve transferred to capital account of partners)        
However from your doubt it looks like , In the solution of the book, Workmen’s Compensation is not transferred to Revaluation account , Please note that, as the amount of transfer from reserve and creation of liability is same , in the solution of book they may have directly created the liability from Workmen’s Compensation reserve and transferred the remaining balance to Partner’s capital A/c . This would not affect the answer as ultimate outcome would be same , but this way is not transparent and the correct way is to do as per the above journal entries .

So I would recommend you to do your solution as per above journal entries and not by following different method .

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It will just appear in the recostituted Balance Sheet of the new firm as Rs. 750. This is because it ig given "A LIABILITY FOR WCF IS CREATED TO AN EXTEND OF Rs.750". This means that the remaining Rs.11250 will be divided among the old partners in their old ratio. This will not be treated as an expense above the existing Rs. 12000. Hope this helps.
  • 3
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