Question

A, B and C who are presently sharing profits and losses in the ratio of 5 : 3 : 2 decide to share future profits and losses in the ratio of 2 : 3 : 5. Give the journal entry to distribute 'Investments Fluctuation Reserve' of ₹ 20,000 at the time of change in profit-sharing ratio, when investment (market value ₹ 95,000) appears in the books at ₹ 1,00,000.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
	Investment Fluctuation Reserve A/c	Dr.		5,000
	To Investments A/c				5,000
	(Adjustment for decrease in the value of investments)
	Investment Fluctuation Reserve A/c	Dr.		15,000
	To A’s Capital A/c				7,500
	To B’s Capital A/c				4,500
	To C’s Capital A/c				3,000
	(Adjustment of balance in Investment Fluctuation Reserve A/c in old ratio)

Working Notes:
WN1 Calculation of Share of Investment Fluctuation Reserve
$$\begin{gathered} \mathrm{A}\text{'}\mathrm{s}\mathrm{share}=15,000\times \frac{5}{10}=7,500 \\ \mathrm{B}\text{'}\mathrm{s}\mathrm{share}=15,000\times \frac{3}{10}=4,500 \\ \mathrm{C}\text{'}\mathrm{s}\mathrm{share}=15,000\times \frac{2}{10}=3,000 \end{gathered}$$