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 profitsharing 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`