Question

Give the Journal entry to distribute 'Investment Fluctuation Reserve' of $Rs.24,000$ at the time of admission of $Z$, when Investment (Market Value $Rs.1,10,000$) appears at $Rs.1,20,000$. The firm has two partners $X$ and $Y$.

Answer 1

Investment fluctuation reserve is created as a provision for any change in the market value of investments. Its a reserve appearing in the balance sheet on the date of admission and it needs to be distributed among the old partners in their profit sharing ratio.

Investments market value=1,10,000

Investment value appearing in balance sheet= 1,20,000

Difference is 10,000 which is to be adjusted from the investment fluctuation reserve account.

The journal entry for this is:-

Investment fluctuation reserve A/c Dr 10,000

To Investments A/c 10,000

Now the balance reserve i.e 14,000 (24,000-10,000) is to be distributed among the partners X and Y. As the question is silent on the ratio of profit sharing, we will assume it to be equal. So, the entry will be:-

Investment fluctuation reserve A/c Dr 14,000

To X's capital A/c 7,000

To Y's capital A/c 7,000

A combined entry for this is:-

Investment fluctuation reserve A/c Dr 24,000

To Investments A/c 10,000

To X's capital A/c 7,000

To Y's capital A/c 7,000