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CMA Intermediate · Financial Accounting · Admission of Partner

P and Q share profits 3:1. Before admitting R, the balance sheet shows Profit and Loss Account (credit) Rs 40,000, Workmen Compensation Reserve Rs 30,000 and a claim against it of Rs 10,000 certain to arise. How much is credited to P and Q together on account of the Workmen Compensation Reserve?

Rs 20,000 is credited to the old partners. The Workmen Compensation Reserve of Rs 30,000 first covers the Rs 10,000 claim, and only the surplus is shared in the old ratio 3:1, giving P Rs 15,000 and Q Rs 5,000.

  1. ARs 30,000
  2. BRs 40,000
  3. CRs 20,000Correct
  4. DRs 10,000

Explanation

The reserve is available to partners only to the extent it exceeds the liability. Surplus is Rs 30,000 - Rs 10,000 = Rs 20,000, shared 3:1 as Rs 15,000 to P and Rs 5,000 to Q. Distributing the full Rs 30,000 ignores the liability.

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