Question
A, B and C who are presently sharing profits and losses in the ratio of 5 : 3 : 2 decide to share future profits and losses in the ratio of 2 : 3 : 5. Give the journal entry to distribute 'Investments Fluctuation Reserve' of ₹ 20,000 at the time of change in profit-sharing ratio, when investment (market value ₹ 95,000) appears in the books at ₹ 1,00,000.
Solution
Journal
|
Date |
Particulars |
L.F. |
Debit Amount (Rs) |
Credit Amount (Rs) |
|
|
|
Investment Fluctuation Reserve A/c |
Dr. |
|
5,000 |
|
|
|
To Investments A/c |
|
|
5,000 |
|
|
|
(Adjustment for decrease in the value of investments) |
|
|
|
|
|
|
Investment Fluctuation Reserve A/c |
Dr. |
|
15,000 |
|
|
|
To A’s Capital A/c |
|
|
|
7,500 |
|
|
To B’s Capital A/c |
|
|
|
4,500 |
|
|
To C’s Capital A/c |
|
|
|
3,000 |
|
|
(Adjustment of balance in Investment Fluctuation Reserve A/c in old ratio) |
|
|
||
Working Notes:
WN1 Calculation of Share of Investment Fluctuation Reserve
A's share = `15,000 xx 5/10 = 7,500`
B's share = `15,000 xx 3/10 = 4,500`
C's share = `15,000 xx 2/10 = 3,000`
