ACCUMULATED PROFITS & LOSSES - GREEN , YELLOW AND RED LINES

©David Thomas

Liabilities Balance Sheet Assets

1. GREEN ( free ) 1. GREEN ( free )
Reserve P/L (Dr) Loss
General Reserve Deferred Revenue expense
Reserve Fund (Advertisement suspense)
Contingency Reserve
P/L (Cr) PROFIT Goodwill ( old )
2. Yellow (Caution)
Workman compensation Reserve
/ Fund
3. Investment Fluctuation fund
RED ( Danger )
Employees Provident Fund (EPF)
Machinery Replacement Fund

Accumulated profits and losses

1. GREEN--> Transfer to old partners Freely ( Old Ratio)
2. YELOW -->Transfer to old partners after deducting respective claims (Old Ratio )
3. RED>Not Transferable – Treat as normal current liability
Debit side Capital accounts credit side
Particulars A B C A B C

Above is common In Admission , Retirement ,Death Change in ratio

Q1 . Pass Journal entries for accumulated profit and losses of ABC in the ratio of 5:3:2
Liabilities Credit side Assets Debit side
1.General Reserve 15,000 5.Advertisement Suspense 9,000
2.Contingency Reserve 45,000 ( Deferred Revenue Expenditure )
3.Reserve fund 10,000 6.Profit and loss ( debit balance ) 16,000
4.Profit and loss a/c ( Credit balance ) 20,000
7.Workman compensation reserve 12,000
8.Employees provident fund 7,000

Workman compensation fund decided at Rs, 2,000 Pass Journals

Q 2 . Pass Journal entries for accumulated profit and losses of ABC in the ratio of 3:2 :1
Liabilities Credit side Assets Debit side
Reserve fund 60,000 5.Advertisement Suspense 15,000
Profit and loss a/c ( Credit balance ) 30,000 ( Deferred Revenue Expenditure )
.Workman compensation reserve 9,000
Employees provident fund 2000

Workman compensation fund decided at Rs, 3,000 Pass Journals

 Q 3. Pass Journal entries for accumulated profit and losses of ABC in the ratio of 5:3:2
Balance sheet
Liabilities Assets
1.Contingency Reserve 90,000 4.Advertisement Suspense 18,000
2.Profit and loss a/c ( Credit balance ) 30,000 ( Deferred Revenue Expenditure )
3.WCR 10,000
5. EPF 5000
WCR decided at Rs. 8,000 . Pass Journals

Different cases of WCR

Amount will be credited to the old partners in the old ratio after deducting claims

1. Workmen compensation - Yellow line –Means divided among partners after deducting the
claims
B/S of A and B in the ratio of 3:2
Workman Compensation30,000

Adjustments:
1. Workman compensation is decided at 20,000
2. Workman compensation is not required or No information in adjustments
3. Workman compensation is decided at 45,000.
4. Workman compensation is decided at 50,000 ( WCR not appeared) the old balance
sheet

1. Workman compensation fund a/c Dr 30,000

To A Capital a/c 6,000
To B Capital a/c 4,000
To Provision for compensation a/c 20,000
( Being transfer of Workman compensation fund to
partners capital account ) in old ratio 3:2
2 Workman compensation fund a/c Dr 30,000
To A capital a/c 18,000
To B Capital a/c 12,000
3. Workman compensation fund a/c Dr 30,000
Revaluation a/c Dr Loss 15,000
To Provision for Workman compensation a/c 45,000
A Capital a/c Dr 9,000
B Capital a/c Dr 6,000
To Revaluation a/c 15,000
Revaluation loss divided in the old ratio
4 Revaluation a/c Dr Loss 50,000
To Provision for Workman compensation a/c 50,000
A Capital a/c Dr 30,000
B Capital a/c Dr 20,000
 To Revaluation a/c 50,000
Revaluation loss divided in the old ratio

When ever there is a loss go to the revaluation account and at the time of profit goes to
capital

Yellow lines Workmen compensation

Q4 Balance sheet of A B C 5 :3 :2
Liabilities
Workman Compensation fund 60,000
Adjustments : WCR decided at Rs. 40,000 . Pass Journals
Q5 Balance sheet of A B C 5 :3 :2
Liabilities
Workman Compensation fund 60,000
Adjustments : WCR decided at Rs. 100,000 Pass Journals
Q6 Balance sheet of A B C 5 :3 :2
Liabilities
Workman Compensation fund 60,000
Pass Journals

2. Investment fluctuation fund / Reserve - Yellow line

Ex Balance sheet of A B 3 :2
Liabilities Assets
Investment Fluctuation fund / Reserve 10,000 Investments 40,000

Adjustments
a..Investments valued at Rs. 36,000
b.Investments valued at 28,000
c.No change in value of
investments
d.Investments valued at Rs. 60000 – Pass Journals

a.Investments valued at Rs. 36,000 .Loss of Rs. 4000

A Investments Fluctuation Reserve a/c Dr 10,000
To A Capital a/c 3,600
To B Capital a/c 3:2 6000 2,400
To Investments a/c - to compensate the loss of investments 4,000

( Being transfer of Investment s Fluctuation Reserve to partners capital account )

b.Investments valued at 28,000 : Loss 12,000 Fund can support 10,000
B.1 Investments Fluctuation Reserve a/c Dr 10,000
Revaluation a/c Dr 2,000
To Investments a/c 12,000
(Being fall in value of Investments adjusted to Investments Fluctuation Reserve )
A Capital a/c Dr 1,200
 B Capital a/c Dr 800
To Revaluation a/c 2,000
( being revaluation loss adjusted )
c.No change in value of investments
C Investments Fluctuation Reserve a/c Dr 10,000
To A Capital a/c 3:2 6000 6,000
To B Capital a/c 4,000
( Being transfer of Investments Fluctuation Reserve to partners capital account )
Investments valued at Rs. 60000 : Profit of 20,000
D1 Investments Fluctuation Reserve a/c Dr 10,000
To A Capital a/c 6,000
To B Capital a/c 4,000
( Being transfer of Investment s Fluctuation Reserve to partners capital account )
2 Investments a/c Dr 20,000
To Revaluation a/c 20,000
( Being increase in value of Investments transferred to Revaluation account )
3 Revaluation a/c Dr 20,000
To A Capital a/c 12,000
To B Capital a/c 8,000
( Being Revaluation Profit divided )

Q7 Balance sheet of A B C 5: 3 :2
Liabilities Assets
Investment Fluctuation fund / 20,000 Investments 60,000
Reserve
Adjustments
1.Investments valued at Rs. 54,000
2.Investments valued at 32,000
3.No change in value of investments
4.Investments valued at Rs. 120000 – Pass Journals

Q 8 . Balance sheet of ABC sharing in the ratio of 5:3:2 as follows:

Liabilities Assets
General Reserve 30,000 P/ L (Dr.) 6,000
Reserve fund 12,000 Investments 9,000
Workman Compensation Reserve(WCR ) 10,000
Investments Fluctuation Reserve (IFR) 1000
Employees Provident fund( EPF ) 5,000
Pass Journals when WCR is decided at Rs.1,000 and Investments Rs. 7,500
Ledger Postings

When any amount to be given to the partners , Credit the Capital accounts
When any amount to be taken from the partners Debit the Capital accounts
Capital accounts
Particulars A B Particulars A B

- +
1. Green lines.
Balance sheet of A and B in the ratio of 3:2
Liabilities Amount Assets Amount
General Reserve 30,000 Profit and loss ( Debit ) 10,000
Contingency reserve 15,000 DRE 5,000

Capital accounts
Particulars A B Particulars A B
To Profit and loss a/c 6,000 4,000 By General reserve 18,000 12,000
To DRE 3,000 2,000 By Contingency reserve 9,000 6,000
At the end green lines will not be appear in the balance sheet

2.Yellow lines : A. Workman compensation fund

Balance sheet of A and B in the ratio of 3:2
Liabilities Amount Assets Amount
Workman Compensation fund 30,000
Adjustments :
1. Workman compensation is decided at 20,000
2. Workman compensation is not required or ( No information in adjustments )
3. Workman compensation is decided at 45,000
4. Workman compensation is decided at 40,000( no WCF in the B/S )
Revaluation account – when there is a loss
Particulars Amount Particulars Amount
3.Work man compensation reserve 15,000
4.Workman compensation reserve 40,000
Capital accounts
Particulars A B Particulars A B
1. By Workman compensation fund 6,000 4,000
(10,000 in the ratio of 3:2 )
2. By Workman compensation fund 18,000 12,000
( 30,000 in the ratio of 3:2 )
Balance sheet
Liabilities Assets Amount
1.Workman Compensation 20,000
2.Workman Compensation 0
3.Workman Compensation 45,000
4. Workman compensation 40,000
B.Investment fluctuation fund

Balance sheet of A and B in the ratio of 3:2

Liabilities Amount Assets Amount
Investment fluctuation fund 10,000 Investments 40,000
Adjustments
1. Investments valued at Rs. 36,000 2. Investments valued at 28,000
3. No change in value of investments 4. Investments valued at Rs. 60000
5.Investments valued at Rs. 40000

Revaluation account
Particulars Amount Particulars Amount
2.Investments 2,000 4.Investments 20,000

Capital accounts
Particulars A B Particulars A B
1.Investments fluctuation 6,000 3:2 3600 2400
3..Investments fluctuation 10,000 3:2 6000 4000
4. Investments fluctuation 10,000 3:2 6000 4000
5. Investments fluctuation 10,000 3:2 6000 4000
New Balance sheet
Liabilities Assets
Investment fluctuation fund 0 1. Investments 36,000
2. Investments 28,000
3. Investments 40,000
4. Investments 60,000
5. Investments 40,000
Investment fluctuation fund will not appear in all the cases in the new balance sheet

3. Red lines .Employees provident fund / Provident fund /EPF

- it is just treated as like any other liability :so it never go the capital accounts
Balance sheet of A and B in the ratio of 3:2
Liabilities Amount Assets Amount
EPF 20,000
Adjustments
1. No change 2. EPF Rs 18,000 3. EPF Rs. 25,000
Revaluation account
Particulars Amount Particulars Amount
3.EPF 5,000 2.EPF 2,000
New Balance sheet
Liabilities Assets
1.EPF 20,000
2.EBF 18,000
3.EBF 25,000
4. Assets and Liabilities are taken by the partners
Balance sheet of A and B in the ratio of 3:2
Liabilities Amount Assets Amount
Bank Loan 20,000 Investments 30,000
Adjustments :
1. Investment taken by A 20,000 - taken in less value
2. Investments taken by A and B at Rs.35,000 – taken at more value
3. Investments taken by B at book value – taken at par value
4. Bank loan taken by B

Revaluation account
Particulars Amount Particulars Amount
1.Investments 10,000 2.Investments 5,000

Capital accounts
Particulars A B Particulars A B
1.To Investments 20,000 By Bank loan 20,000
2.To Investments 21,000 14,000
3.To investments 30,000
Investments will not appear in the new balance sheet ©David Thomas

Changes will not the Capital accounts

5. When Bad debts recovered

+ Cash and Show in revaluation a/c as Profit

Changes will not affect the Revaluation and the Capital accounts

6. When a liability paid off – Bank overdraft paid off

Less in Cash : Less in Bank overdraft

7. When asset sold for cash at the same price

+ Cash - Asset

8. When bills receivable discounted and dishonored

Add in Debtors and Less in Cash or bank
©David Thomas