Question

A, B and C sharing profits and losses in the ratio of 3:2:1 decide to admit D for $\frac{1}{5}th$ share with effect from 1st April, 2017. An extract of their Balance Sheet as at 31st March, 2017 is :

$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Rs}& \text{Assets}& \text{Rs}\\ \text{Investments Fluctuation Reserve}& 30,000& \text{Investments (At cost)}& 5,00,000\end{array}$

Show the accounting treatment under the following alternative cases :

Case 1. If there is no other information.

Case 2. If the market value of investments is Rs 5,00,000.

Case 3. If the market value of investments is Rs 4,82,000.

Case 4. If the market value of investments is Rs 4,55,000.

Case 5. If the market value of investments is Rs 5,24,000.

Answer 1

JOURNAL

$\begin{array}{ccccc}\text{Date}& \text{Particulars}& \text{L.F.}& \text{Dr.(Rs)}& \text{Cr.(Rs)}\\ 2017& & & & \\ \text{April 1}& & & & \\ \text{Case 1}& \text{Investments Fluctuation Reserve A/c}Dr.& & 30,000& \\ & \text{To A's Capital A/c}& & & 15,000\\ & \text{To B's Capital A/c}& & & 10,000\\ & \text{To C's Capital A/c}& & & 5,000\\ & \text{(Investments fluctuation reserve credited to partners'}& & & \\ & \text{capital accounts in their old profit-sharing ratio)}& & & \\ & \underset{–}{}& & & \\ \text{Case 2}& \text{Same entry as given in Case 1.}& & & \\ & \underset{–}{}& & & \\ \text{Case 3}& \text{Investments Fluctuation Reserve A/c}Dr.& & 30,000& \\ & \text{To Investments A/c}& & & 18,000\\ & \text{To A's Capital A/c}& & & 6,000\\ & \text{To B's Capital A/c}& & & 4,000\\ & \text{To C's Capital A/c}& & & 2,000\\ & \text{(Excess investments fluctuation reserve credited to}& & & \\ & \text{partners' capital accounts in their old profit-}& & & \\ & \text{sharing ratio)}& & & \\ & \underset{–}{}& & & \\ \text{Case 4}& \text{Investment Fluctuation Reserve A/c}Dr.& & 30,000& \\ & \text{Revaluation A/c}Dr.& & 15,000& \\ & \text{To Investments A/c}& & & 45,000\\ & \text{(Fall in book value of investments credited to}& & & \\ & \text{investments account and excess fall charged to}& & & \\ & \text{revaluation account)}& & & \\ & \underset{–}{}& & & \\ & \text{A's Capital A/c}Dr.& & 7,500& \\ & \text{B's Capital A/c}Dr.& & 5,000& \\ & \text{C's Capital A/c}Dr.& & 2,500& \\ & \text{To Revaluation A/c}& & & 15,000\\ & \text{(Loss on revaluation debited to partners' Capital}& & & \\ & \text{accounts in their old profit-sharing ratio)}& & & \\ & \underset{–}{}& & & \\ \text{Case 5}& \text{Investments Fluctuation Reserve A/c}Dr.& & 30,000& \\ & \text{To A's Capital A/c}& & & 15,000\\ & \text{To B's Capital A/c}& & & 10,000\\ & \text{To C's Capital A/c}& & & 5,000\\ & \text{(Investments fluctuation reserve credited to partners'}& & & \\ & \text{capital accounts in their old profit-sharing ratio)}& & & \\ & \underset{–}{}& & & \\ & \text{Investments A/c}Dr.& & 24,000& \\ & \text{To Revaluation A/c}& & & 24,000\\ & \text{(Value of investments brought up to market value)}& & & \\ & \underset{–}{}& & & \\ & \text{Revaluation A/c}Dr.& & 24,000& \\ & \text{To A's Capital A/c}& & & 12,000\\ & \text{To B's Capital A/c}& & & 8,000\\ & \text{To C's Capital A/c}& & & 4,000\\ & \text{(Profit on revaluation credited to partner's Capital}& & & \\ & \text{Accounts in their old profit-sharing ratio)}& & & \end{array}$