$A, B$ and $C$ who are presently sharing profits and losses in the ratio of $5 : 3 : 2$ decided to share future profits and losses in the ratio of $2 : 3 : 4$ . Give the Journal entry to distribute 'Investments Fluctuation Reserve' of Rs. $20, 000$ at the time of change in profit sharing ratio, when Investment (market value Rs. $95, 000$ ) appears in the books at Rs. $1, 00, 000$ .

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Solution

1. Investment Fluctuation Reserve A/c.......Dr. 5000
To Investments A/c 5000
(Being decrease in the market value of the investments adjusted with the reserve)
2. Investment Fluctuation Reserve A/c.......Dr. 15000
To X's Capital A/c 7500
To Y's Capital A/c 4500
To Z's Capital A/c 3000
(Being the balance in investment fluctuation reserve distributed in the old ratio)

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