Question

A and B who are presently sharing profits and losses in the ratio of 5 : 3 , decide to admit C as a new partner and to share future profits and losses in the ratio of 4:3:2. Give the journal entry to distribute ‘Investments Fluctuation Reserve’ of Rs. 20,000 when investment (Book value Rs. 95,000) has market value of i) 90,000 ii) 80,000 iii) 70,000 and iv) 1,15,000

Answer 1

Answer:

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Answer 2

Answer:

Explanation:

                          JOURNAL ENTRIES                                                                  

Investment Fluctuation Reserve A/c.......Dr.      5000

   To Investments A/c                                                          5000

(Being decrease in the market value of the investments adjusted with the reserve)

Investment Fluctuation Reserve A/c.......Dr.       15000

 To X's Capital A/c                                                             7500

 To Y's Capital A/c                                                              4500  

 To Z's Capital A/c                                                              3000

(Being the balance in investment fluctuation reserve distributed in the old ratio)

WORKING NOTES

Calculation of share of investment of flactuating reserve

A's share= 15000 * 5 /10 =  7500

B's share= 15000 * 3 /10 =  7500

C's share= 15000 * 2 /10 =  7500