Question

Nitin, Tarun and Amar are partners sharing profits equally and decide to share profits in the ratio of $2:2:1$ w.e.f. $1st$ April, $2018$ . The extract of their Balance Sheet as at $31st$ March, $2018$ is as follows :

Liabilities	Rs.	Assets	Rs.
Investments Fluctuation	$60,000$	Investments (At cost)	$4,00,000$

Pass the Journal entries in each of the following situation :
(i) When its Market Value is not given
(ii) When its Market Value is given as Rs. $4,00,000$ ;
(iii) When its Market Value is given as Rs. $4,24,000$ ;
(iv) When its Market Value is given as Rs. $3,70,000$ ;
(v) When its Market Value is given as Rs. $3,10,000.$

Answer 1

1. Nitin's capital A/c 4000

Tarun's capital A/c 4000

To Amar's capital A/c 8000

(Being adjustment made for reserve assuming that there is no decrease in value of investments)

2. Nitin's capital A/c 4000

Tarun's capital A/c 4000

To Amar's capital A/c 8000

(Being adjustment made for reserve)

3. Nitin's capital A/c 2400

Tarun's capital A/c 2400

To Amar's capital A/c 4800

(Being adjustment made for reserve)

4. Investment fluctuation reserve A/c.................Dr. 30000

To Investments A/c 30000

(Being decrease in the market value of investment adjusted through reserve)

Nitin's capital A/c 2000

Tarun's capital A/c 2000

To Amar's capital A/c 4000

(Being adjustment made for balance reserve)

5. Investment fluctuation reserve A/c.................Dr. 60000

Profit and Loss A/c.............................................Dr. 30000

To Investments A/c 90000

(Being decrease in the market value of investment adjusted through reserve)

Notes:

1. Calculation of gaining and sacrificing ratio

Nitin: 2/5 - 1/3 = 1/15

Tarun: 2/5 - 1/3 = 1/15

Amar: 1/5 - 1/3 = (2/15)

2. It is assumed that the partners decide to maintain the investment reserve in future.