Treatment of accumulated profits and losses

1. Class XII Accountancy
Unit : Partnership
Chapter : Admission of Partner
By Mamta Narula

2. Topics to be covered
Treatment of
Accumulated profits and Accumulated losses
 Workmen compensation Fund
 Investment Fluctuation Fund

3. Treatment of
Accumulated profits and Accumulated losses
Liabilities Amount Assets Amount
P & L Account (Cr. Balance)
General Reserve
Contingency Reserve
Workmen compensation Fund
Investment Fluctuation Fund
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P & L Account (Dr. Balance)
Deferred Revenue
Expenditure
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Balance Sheet

4. Treatment of
Accumulated profits and Accumulated losses
Accumulated
Profits
• Credited in the old
partner’s capital
Accumulated
Losses
• Debited in the old
partner’s capital
In
Old
Ratio

5. Liabilities Amount Assets Amount
P & L Account (Cr. Balance)
General Reserve
Contingency Reserve
Workmen compensation Fund
Investment Fluctuation Fund
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P & L Account (Dr. Balance)
Deferred Revenue
Expenditure
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Balance Sheet
Dr. Partner’s Capital Accounts Cr.
Particulars Amount Particulars Amount
P & L Account (Dr. Balance)
Deferred Revenue Expenditure
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P & L Account (Cr. Balance)
General Reserve
Contingency Reserve
Workmen compensation Fund
Investment Fluctuation Fund
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6. Journal Entries
For distribution of undistributed profit and
reserve.
For distribution of loss
Reserves A/c Dr
Profit & 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]
In
Old
Ratio

7. Mohan Sohan
Meena
Profit sharing ratio
2:1
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.

8. Liabilities Amount Assets Amount
Journal Entries
For distribution of general reserve For distribution of Profit and Loss A/c
Reserves A/c Dr 30,000
To Mohan’s Capital A/c 20,000
To Sohan’s Capital A/c 10,000
Mohan’s Capital A/c 4,000
Sohan’s Capital A/c 2 ,000
To Profit and Loss A/c 6,000
General Reserve 30,000
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P & L Account (Dr. Balance) 6000
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Balance Sheet

9. Treatment of
Workmen Compensation Fund
Workmen
compensation
Fund is made to
face the loss due to
payment of
compensation due
to injury suffered
by worker during
work

10. Treatment of
Workmen Compensation Fund
Particulars Amount Assets Amount
Different
Cases
Claim
Is
40,000
Claim
Is
70,000
There is
no
Claim
Claim
Is
1,00,000
Workmen compensation Fund 70,000

11. Mohan Sohan
Meena
Profit sharing ratio
2:1
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.

12. Treatment of Workmen Compensation Fund
Liabilities Amount Assets Amount
Case - 1
Claim
Is
40,000
Workmen compensation Fund 70,000
Keep
40,000 aside
Distribute remaining
among old partners in
old ratio

13. Journal Entries
Liabilities Amount Assets Amount
Case - 1
Claim
Is
40,000
Workmen compensation Fund 70,000
Workmen compensation Reserves A/c Dr 70,000
To claim for workmen compensation A/c 40,000
To Mohan’s Capital A/c 20,000
To Sohan’s Capital A/c 10,000
Old partners
Old
Ratio

14. Treatment of Workmen Compensation Fund
Particulars Amount Assets Amount
Case - 2
Claim
Is
70,000
Workmen compensation Fund 70,000
Keep
70,000 aside
Nothing is left to
Distribute among old
partners

15. Journal Entries
Liabilities Amount Assets Amount
Case - 2
Claim
Is
70,000
Workmen compensation Fund 70,000
Workmen compensation Reserves A/c Dr 70,000
To claim for workmen compensation A/c 70,000

16. Treatment of Workmen Compensation Fund
Liabilities Amount Assets Amount
Case - 3
There
Is
No Claim
Workmen compensation Fund 70,000
No need to
Keep
Anything aside
Distribute whole amount
among old partners in
old ratio

17. Journal Entries
Liabilities Amount Assets Amount
Case - 3
There
Is
No Claim
Workmen compensation Fund 70,000
Workmen compensation Reserves A/c Dr 70,000
To Mohan’s Capital A/c 46667
To Sohan’s Capital A/c 23333
Old partners
Old
Ratio

18. Treatment of Workmen Compensation Fund
Liabilities Amount Assets Amount
Case - 4
Claim
Is
1,00,000
Workmen compensation Fund 70,000
Keep aside
100,000
• Nothing is left to be
distributed
• Old partner will have
to bear loss of 30,000

19. Journal Entries
Liabilities Amount Assets Amount
Case - 4
Claim
Is
1,00,000
Workmen compensation Fund 70,000
Workmen compensation Reserves A/c Dr 70,000
Revaluation A/c Dr. 30,000
To claim for workmen compensation A/c 100,000
Mohan’s Capital A/c Dr. 20,000
Sohan’s Capital A/c Dr. 10,000
To Revaluation 30,000
Old partners
Old
Ratio

20. 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 sheet
Liability side

21. 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

22. Treatment of Investment Fluctuation Fund
Liabilities Amount Assets Amount
Investment Fluctuation Fund 21,000 Investment 30,000
Different
Cases
Market value of
Investment
Is
27,000
Market value of
Investment
Is
32,000
Market value of
Investment
Is
30,000

23. Treatment of Investment Fluctuation Fund
Liabilities Amount Assets Amount
Investment Fluctuation Fund 21,000 Investment 30,000
Case 1
Market value of
Investment
Is
27,000
Don’t
Worry
We have
Arrangement
We will use
3,000 out of
21,000

24. Treatment of Investment Fluctuation Fund
Liabilities Amount Assets Amount
Investment Fluctuation Fund 21,000 Investment 30,000
Case 1
Market value of
Investment
Is
What
27,000
about
remaining
18,000 We will distribute
18,000 among old
partners in old ratio

25. Journal Entries
Liabilities Amount Assets Amount
Investment Fluctuation Fund 21,000 Investment 30,000
Case 1
Market value of
Investment
Is
27,000
Investment Fluctuation Fund A/c Dr 21,000
To Investment A/c 3,000
To Mohan’s Capital A/c 12,000
To Sohan’s Capital A/c 6,000
Old partners
Old
Ratio

26. Treatment of Investment Fluctuation Fund
Liabilities Amount Assets Amount
Investment Fluctuation Fund 21,000 Investment 30,000
Case 2
Market value of
Investment
Is
32,000
No need to
use
This fund
We will distribute
21,000 among old
partner in old ratio

27. Journal Entries
Liabilities Amount Assets Amount
Investment Fluctuation Fund 20,000 Investment 30,000
Case 2
Market value of
Investment
Is
32,000
Investment Fluctuation FundA/c Dr 21,000
To Mohan’s Capital A/c 14000
To Sohan’s Capital A/c 7000
Old partners
Old
Ratio

28. Treatment of Investment Fluctuation Fund
Liabilities Amount Assets Amount
Investment Fluctuation Fund 21,000 Investment 30,000
Case 3
Market value of
Investment
Is
30,000
What to do
with this fund
We will distribute
21,000 among old
partner in old ratio

29. Journal Entries
Liabilities Amount Assets Amount
Investment Fluctuation Fund 21,000 Investment 30,000
Case 3
Market value of
Investment
Is
30,000
Investment Fluctuation FundA/c Dr 21,000
To Mohan’s Capital A/c 14000
To Sohan’s Capital A/c 7000
Old partners
Old
Ratio

30. Point
to
remember
Investment Fluctuation Fund is used
WHEN
Market
value
Book
value
Market
value of
Investment
Book
value of
Investment