Question

Sunny and Ujjwal were partners in a firm sharing profits and losses in the ratio of 3 : 2. On 1st April, 2024 Timmy was admitted as a new partner for `1/5`th share in profits which he acquired equally from Sunny and Ujjwal. On the date of Timmy’s admission the Balance Sheet of Sunny and Ujjwal showed investments at ₹ 5,00,000 and a balance of ₹ 2,00,000 in Investment Fluctuation Reserve.

Pass necessary journal entries for treatment of Investment fluctuation reserve on the date of Timmy’s admission in each of the following cases:

1. Market value of Investments was ₹ 5,00,000.
2. Market value of Investments was ₹ 3,00,000.
3. Market value of Investments was ₹ 2,00,000.

Answer 1

(i)

Journal
Date	Particulars	L.F.	Amount (₹)	Amount (₹)
2024
Apr. 1	Investment fluctuation reserve A/c    ...Dr.		2,00,000	-
	To Sonny’s Capital A/c		-	1,20,000
	To Ujjwal’s Capital A/c		-	80,000
	(Being reserves distributed in old ratio as market value is equal to book value)

(ii)

Journal
Date	Particulars	L.F.	Amount (₹)	Amount (₹)
2024
Apr. 1	Investment fluctuation reserve A/c    ...Dr.		2,00,000	-
	To Investment A/c		-	2,00,000
	(Being Whole reserve credited to Investment account being decrease in value by ₹ 2,00,000)

(iii)

Journal
Date	Particulars	L.F.	Amount (₹)	Amount (₹)
2024
Apr. 1	Investment fluctuation reserve A/c    ...Dr.		2,00,000	-
	Revaluation A/c    ...Dr.		1,00,000	-
	To Investment A/c		-	3,00,000
	(Being investment reduced by ₹ 3,00,000 and loss debited to Revaluation Account)
Apr. 1	Sonny’s Capital A/c    ...Dr.		60,000	-
	Ujjwal’s Capital A/c    ...Dr.		40,000	-
	To Revaluation A/c		-	1,00,000
	(Being loss transferred to Partner’s Capital A/cs in old ratio)