Accounting treatment of Workmen Compensation Fund at the time of reconstitution

Workmen Compensation Reserve : Workmen Compensation Reserve is a reserve created for some specific purpose to compensate workers . It is treated as a Liability in balance sheet of the firm. This Liability may arise or may not. If This Liability doesn't arise, it is distributed to old partners in old ratio at the time of admission of a partner .

Treatment of WCR at the time of reconstitution (admission, retirement, change in PSR, death) in different cases:

Case-I : When firm has maintained WCR but no claim arise -  

Journal Entry :

WCR  ----------Dr.

To Old Partner's Capital Account

( Being amount of wcr credited to old              partner's capital accounts)

Accounting Treatment :

Partner's Capital Account : The full amount of WCR is distributed and Credited in old ratio.

Balance Sheet : Amount of claim is deducted from WCR.

2. When firm has maintained WCR and claim arise to the extent of WCR maintained :

Journal Entry :

WCR --------Dr.

To claim for WCR

( Being claim admitted against wcr )

Accounting treatment :

Balance Sheet : Shown as WCR claim in Liability side to the extent of full amount.

3. When firm has maintained WCR and Claim arise but the amount of claim is less than the amount of WCR maintained :

Journal Entry :

WCR -----Dr. (Amount of WCR maintained )

To WCR Claim ( claimed amount)

To Old Partner's Capital Account ( unclaimed amount)

( Being unclaimed amount of wcr distributed and credited to partner's capital account )

Accounting treatment :

Partner's Capital Account : credited unclaimed amount in old ratio.

Balance Sheet : Deduct unclaimed amount from WCR in Liability side.

4. When firm has maintained WCR and Claim arise but the amount of claim is more than the amount of WCR maintained : 

Journal Entry :

WCR----Dr. (Amount of WCR maintained)

Revaluation Account----Dr. (Amount of claim could not be met by WCR)

To WCR claim  ( Total amount of claim)

( Being excess claim debited to revaluation account )

Accounting treatment :

Revaluation Account : Debit the amount of claim not met by WCR.

Balance Sheet : Total amount of claim is shown as Claim for WCR in Liability side.

5. When firm has not maintained WCR and claim arise :

Journal Entry :

Revaluation Account -----Dr.

To WCR Claim

( Being claim arise for WCR )

Accounting treatment :

Revaluation Account : Debit the amount of claim

Balance Sheet : Shown in Liability side.