How to treat workmen compensation claim in revaluation account?

Meaning of Workmen’s Compensation Reserve

Workmen compensation reserve is a reserve created to compensate the labourers and employees of a firm in case of an uncertain future event in the line with their work. For example, if a labourer or group of labourers get injured seriously while working on the premises of the firm, then they will be compensated from the money kept aside in the workmen’s compensation reserve.

Workmen’s compensation reserve is created using the profits of a business. The journal entry for the creation of workmen compensation reserve is as follows:

When a claim arises, the claim amount is transferred to Provision for workmen compensation claim A/c

Treatment of workmen compensation reserve in revaluation account

At the time of admission, retirement or death of partner or change in profit sharing ratio, the reserve is distributed among the old or existing partners or kept intact.

Workmen’s compensation reserve is also distributed among the old or existing partners subject to the claim arising on the reserve.

Here are the three situations:

The revaluation account comes into the picture only when the claim is more than the amount available in the reserve. For example, the claim is Rs. 20,000 but the amount in the reserve is only Rs. 15,000.

In such a case, the excess claim will be met by debiting the revaluation account.

The journal will as  given below:

Since the revaluation account is debited, it is a loss and this loss will be written from old or existing partners’ capital in the old profit sharing ratio. The journal entry is given below: