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

Investments market value = 1,10,000

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

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

The journal entry for this is:-

Investment fluctuation reserve Account Dr 10,000

To Investments Account 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 profit sharing, we will assume it to be equal. So, the entry will be:-

Investment fluctuation reserve Account Dr 14,000

To X’s capital Account 7,000

To Y’s capital Account 7,000

A combined entry for this will be

Investment fluctuation reserve Account Dr 24,000

To Investments Account 10,000

To X’s capital Account 7,000

To Y’s capital Account 7,000

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