Explain the three types of the accounting treatment of investment fluctuation reserve
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Investment Fluctuation Reserve is a reserve created out of the profits to meet the fall in the market value of investments. It is created to adjust the difference between the book value and market value of investment. Excess of IFR over difference between book value and market value is credited to old partners in their old profit sharing ratio.
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➜Investment Fluctuation reserve is a reserve which has been set aside from free reserves only for making the adjustment for losses on valuation of Investment. In Other words, the Investment Fluctuation reserves are having a credit balance and appear in the Balance Sheet on the liability side of Balance Sheet (also, Investments will be shown in the Balance Sheet as an asset). Sometimes, the firm creates investment fluctuation reserve/ fund for adjusting the decrease in the value of the investment made (it will appear on the liability side of the Balance Sheet). The three situations arise when such reserves appear in the Balance Sheet
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