Q.J and K are partners sharing profits in the ratio of 3:2. Their Balance Sheet shows a General Reserve of ₹30,000, a credit balance of Profit and Loss Account of ₹15,000, and a Workmen Compensation Reserve of ₹10,000 against which no claim is expected. On admission of L as a new partner, these are to be transferred to the old partners' capital accounts. Pass the necessary journal entry.

Since all three amounts were accumulated before L joined the firm, they belong wholly to J and K and must be transferred out to their capital accounts in the OLD ratio before determining the new balance sheet.

Step 1 — Identify the amounts to be distributed

All three of these items — the General Reserve, the credit balance of the Profit and Loss Account, and the Workmen Compensation Reserve (since no claim is expected against it, the whole amount is a free reserve) — represent profits accumulated by the firm BEFORE L's admission. They therefore belong entirely to the old partners, J and K, in their old profit-sharing ratio.

General Reserve = ₹30,000

Profit and Loss A/c (Cr. balance) = ₹15,000

Workmen Compensation Reserve (no claim expected) = ₹10,000

Total to be distributed = ₹30,000 + ₹15,000 + ₹10,000 = ₹55,000

Step 2 — Divide between J and K in the old ratio of 3:2

J's share = 3/5 × ₹55,000 = ₹33,000

K's share = 2/5 × ₹55,000 = ₹22,000

Check: ₹33,000 + ₹22,000 = ₹55,000 ✓

Step 3 — Journal Entry

A common mistake is distributing these reserves in the NEW ratio (including L) — they must always be shared in the OLD ratio, among J and K only, since L has no claim to profits accumulated before joining the firm. Also, if a Workmen Compensation Reserve is only PARTLY in excess of an expected claim, only the excess port …