Page 5 - L N (change in psr)

I It is a reserve that is set aside or appropriated out of firm’s profits to meet any

of the possible liabilities with respect to employees’ compensation, if it arises.

ii. Claim with respect to such liabilities may or may not arise.

iii. The amount of claim may or may not be equal to the amount of reserves.

Accounting Treatment of Workmen Compensation Reserve under different
situations:

Following are the journal entries for explaining accounting treatment of

Workmen Compensation Reserve under different situation:

a. When claim against workmen compensation reserve does not exist:

In this situation, amount of this reserve is transferred to Partners’ Capital
Accounts in their old profit sharing ratio. Entry to be passed is:

Workmen Compensation Reserves A/c …Dr.

To Partners’ Capital (or Current) A/c
(Being workmen compensation reserves credited to partners’ capital or
current accounts in their old profit sharing ratio)

b. When claim for workmen compensation reserve exists:
In such situation, treatment shall depend on the amount of liabilities:

i. Claim is equal to reserves: Amount of reserves is transferred to
Provision for Workmen Compensation Claim Account. Entry to be

passed:

Workmen Compensation Reserves A/c …Dr.

To Provision for Workmen Compensation Claim A/c

(Being the provision made for estimated compensation claim)

ii. Claim amount is lower than the reserve: Excess of Workmen

Compensation Reserve over the Workmen Compensation Claim is
credited to all partners in their old profit sharing ratio. Entry is: