Question

6.A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 1st April, 2019 they decided to
admit C. Their new ratio is decided to be equal. Pass the necessary Journal entry to distribute Investment
Fluctuation Reserve of Rs.60,000 at the time of C’s admission, when Investment appears in the books at
Rs.2,10,000 and its market value is Rs.1,90,000.

Answer 1

Explanation:

Profit and Loss adjustment Account Dr 20000

To Investment 20000

(investment reduced by 20000)

Investment Fluctuation Reserve Dr 40000

To A capital 32000

To B capital 8000

( reserve distributed in sacrifice ratio to old partners)

sacrifice ratio = Old - New

A sacrifice = 3/5 -1/3 = 4/15

B sacrifice = 2/5 - 1/3 = 1/15

sacrifice ratio = 4:1

Investment Fluctuation Reserve have 60000 but investment are reduced by 20000 so it's Balance 40000 is distributed between old partner