Question

At the time of admission of a partner, the Balance Sheet of the firm showed a workmen compensation reserve of ₹80,000. The claim for workmen compensation was estimated at ₹1,00,000. The shortfall of ₹20,000 will be:

• A. Debited to Revaluation Account
• B. Credited to Revaluation Account
• C. Debited to Partners’ Capital Accounts
• D. Credited to Partners’ Capital Accounts

Hint:

Any shortfall or surplus in reserves during admission is adjusted through the revaluation account to reflect changes in liabilities or assets.

Answer 1

The Correct Option is A

The workmen compensation reserve of ₹80,000 was created to meet any claims for workmen compensation. At the time of admission, the actual claim is ₹1,00,000. This creates a shortfall of ₹20,000.
Step 1: Treatment of the reserve:
The workmen compensation reserve is first used to meet the claim. Since the claim exceeds the reserve, the shortfall is treated as a loss. 
Step 2: Account to debit:
The shortfall of ₹20,000 is debited to the Revaluation Account because it represents a liability adjustment at the time of admission of a partner. Conclusion:
The shortfall of ₹20,000 will be debited to the Revaluation Account.