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Class 12AccountancyReconstitution - Admission of a PartnerReservesHard
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A firm's Insurance Reserve is ₹44,000, whereas the insurance claim admitted is ₹62,000. At the time of admission of a partner, what will be the accounting treatment of the excess claim amount?

Answer and explanation

Correct answer: ₹18,000 loss transferred to Revaluation Account

The Insurance Reserve can absorb ₹44,000 of the claim. Since the total claim is ₹62,000, the shortfall is ₹18,000 (₹62,000 − ₹44,000). This excess claim is debited to the Revaluation Account as a loss and is ultimately borne by the old partners in their old profit-sharing ratio. Hence, option A is correct. Option B is incorrect because the difference represents a loss, not an accumulated profit. Exam tip: When a claim exceeds the related reserve, transfer only the excess to the Revaluation Account as a loss.

Related tags

Insurance ReserveAdmission Of PartnerRevaluation AccountExcess ClaimPartnership AccountingReservesReconstitution Admission Of A PartnerAccountancy
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10 more MCQs
  1. 1At the time of admission of a new partner to whom is general reserve given?
  2. 2At the time of admission how is credit balance of Profit and Loss Account treated?
  3. 3At the time of admission what does debit balance of Profit and Loss Account show?
  4. 4A and B share profits in the old ratio of 3:2. At the time of admission of a new partner, the general reserve is ₹50,000. How much will A receive from the general reserve?
  5. 5X and Y are partners sharing profits in the old ratio of 4:1. The firm's reserve fund is ₹25,000. On reconstitution of the partnership, what share of the reserve fund will Y receive?
  6. 6Why does the new partner not receive a share of the old General Reserve?
  7. 7Which is the correct journal entry for distributing general reserve?
  8. 8Which entry is made for writing off debit balance of Profit and Loss Account?
  9. 9Profit and Loss Account has credit balance ₹30000. A and B share in 2:1. How much will be credited to B?
  10. 10A firm's Profit and Loss Account has a debit balance of ₹18,000. Partners A and B share profits and losses in the old ratio of 5:4. What amount will be debited to A's Capital Account?
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