Question

P, Q and R are partners in a firm sharing profits in the ratio of 3 : 3 : 2. From 1st April 2024, they decided to share profits equally. On that date following balances appeared in their books:

	₹
Workmen Compensation Reserve	72,000
Investment Fluctuation Reserve	30,000
Investments (At Cost)	6,00,000

Based on the above information you are required to answer the following alternate question:

If investments are valued at 4,50,000, then in respect of investments:

Options

• Debit P, Q and R by ₹ 50,000 each

• Debit P, Q and R by ₹ 40,000 each

• Debit P by ₹ 45,000; Q by ₹ 45,000 and R by ₹ 30,000

• Debit P by ₹ 56,250; Q by ₹ 56,250 and R by ₹ 37,500

Answer 1

Debit P by ₹ 45,000; Q by ₹ 45,000 and R by ₹ 30,000.

Explanation:

Journal Entries for reduction in the value of investments will be:

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Investment Fluctuation Reserve A/c   ...Dr.		30,000
	Revaluation A/c   ...Dr.		1,20,000
	To Investments A/с			1,50,000
	(Being fall in the value of investments adjusted through investment fluctuation reserve and shortfall charged to Revaluation Account)
	P's Capital A/c   ...Dr.		45,000
	Q's Capital A/c   ...Dr.		45,000
	R's Capital A/c   ...Dr.		30,000
	To Revaluation A/c			1,20,000
	(Being transfer of loss on revaluation to partner's Capital Accounts in their old profit sharing ratio)