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Question 18 Chapter 4 of +2-A
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18. Nitin, Tarun and Amar are partners sharing profits equally and decide to share profits in the ratio of 2 : 2 : 1 w.e.f. 1st April, 2019. The extract of their Balance Sheet as at 31st March, 2019 is as follows:
| Liabilities | Assets | ||
| Investments Fluctuation Reserve | 60,000 | Investments (At Cost) | 4,00,000 |
Pass the Journal entries in each of the following situations:
- When its Market Value is not given;
- When its Market Value is 4,00,000;
- When its Market Value is 4,24,000;
- When its Market Value is 3,70,000;
- When its Market Value is 3,10,000.
The solution of Question 18 Chapter 4 of +2-A
In the cases I & II – The following journal entry will be posted in the books
| In the Books of _______________ | |||||
| Date | Particulars | L.F. | Debit | Credit | |
| 2019 | |||||
| 31st March | Investment Fluctuation Reserve A/c | Dr | 60,000 | ||
| To Nitin’s Capital A/c*1 | 20,000 | ||||
| To Tarun’s Capital A/c*1 | 20,000 | ||||
| To Amar’s Capital A/c *1 | 20,000 | ||||
| (Being Adjustment for Investment Fluctuation Reserve) | |||||
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Working Note :
WN *1 Calculation of Share of Investment Fluctuation Reserve –
In the case I & II – The full amount of I.F.R distributed amount the partners because there is no fluctuation in the investment.
| Amount to be Credited to Nitin’s Capital | = | 60,000 | X | 1 |
| 3 | ||||
| = | 20,000 |
| Amount to be Credited to Tarun’s Capital | = | 60,000 | X | 1 |
| 3 | ||||
| = | 20,000 |
| Amount to be Credited to Amar’s Capital | = | 60,000 | X | 1 |
| 3 | ||||
| = | 20,000 |
In case III – The following journal entry will be posted in the books
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| In the Books of _______________ | |||||
| Date | Particulars | L.F. | Debit | Credit | |
| 2019 | |||||
| April 1 | Investment Fluctuation Reserve A/c | Dr | 60,000 | ||
| To Nitin’s Capital A/c*1 | 20,000 | ||||
| To Tarun’s Capital A/c*1 | 20,000 | ||||
| To Amar’s Capital A/c *1 | 20,000 | ||||
| (Being Adjustment for Investment Fluctuation Reserve) | |||||
| Investment A/c | Dr | 24,000 | |||
| To Revaluation A/c | 24,000 | ||||
| (Being increase in the value of investment ) | |||||
| Revaluation A/c | Dr | 24,000 | |||
| To Nitin’s Capital A/c*1 | 8,000 | ||||
| To Tarun’s Capital A/c*1 | 8,000 | ||||
| To Amar’s Capital A/c *1 | 8,000 | ||||
| (Being revaluation is profit distributed ) | |||||
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Working Note :
WN *2 Calculation of Share of Investment Fluctuation Reserve –
In the case III – The full amount of I.F.R distributed amount the partners because there is increase in the value of investment. The amount of increase in the value of the investment will be transferred to the revaluation a/c.
| Amount to be Credited to Nitin’s Capital | = | 60,000 | X | 1 |
| 3 | ||||
| = | 20,000 |
| Amount to be Credited to Tarun’s Capital | = | 60,000 | X | 1 |
| 3 | ||||
| = | 20,000 |
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| Amount to be Credited to Amar’s Capital | = | 60,000 | X | 1 |
| 3 | ||||
| = | 20,000 |
In the case IV – The following journal entry will be posted in the books
| In the Books of _______________ | |||||
| Date | Particulars | L.F. | Debit | Credit | |
| 2019 | |||||
| April 1 | Investment Fluctuation Reserve A/c | Dr | 60,000 | ||
| To Investment A/c *3 | 30,000 | ||||
| To Nitin’s Capital A/c*3 | 10,000 | ||||
| To Tarun’s Capital A/c*3 | 10,000 | ||||
| To Amar’s Capital A/c *3 | 10,000 | ||||
| (Being Adjustment for Investment Fluctuation Reserve) | |||||
Working Note : –
WN *3 Calculation of Share of Investment Fluctuation Reserve –
In the case IV – The amount of I.F.R distributed as following: –
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| Distributable Amount of I.F.R. | = | Total I.F.R. Balance – (Difference between Market value and Cost) |
| = | 60,000 – (3,70,000 – 4,00,000) | |
| Distributable Amount of I.F.R. | = | 30,000 |
| Amount to be Credited to Nitin’s Capital | = | 30,000 | X | 1 |
| 3 | ||||
| = | 10,000 |
| Amount to be Credited to Tarun’s Capital | = | 30,000 | X | 1 |
| 3 | ||||
| = | 10,000 |
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| Amount to be Credited to Amar’s Capital | = | 30,000 | X | 1 |
| 3 | ||||
| = | 10,000 |
In the case V – The following journal entry will be posted in the books
| In the Books of _______________ | |||||
| Date | Particulars | L.F. | Debit | Credit | |
| 2019 | |||||
| April 1 | Investment Fluctuation Reserve A/c | Dr | 60,000 | ||
| Revaluation A/c | Dr | 30,000 | |||
| To Investment A/c | 90,000 | ||||
| (Being total decrease in the value of the investment is Rs 90,000 and 60000 adjusted with the I.F.R account and balance from the revaluation a/c) | |||||
| Nitin’s Capital A/c *4 | Dr | 10,000 | |||
| Tarun’s Capital A/c *4 | Dr | 10,000 | |||
| Amar’s Capital A/c *4 | Dr | 10,000 | |||
| To Revaluation A/c *3 | 30,000 | ||||
| (Being revaluation is Loss distributed ) | |||||
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Working Note : –
WN *4 Calculation of Share of Investment Fluctuation Reserve –
In the case IV – The amount of I.F.R distributed as following: –
| Distributable Amount of I.F.R. | = | Total I.F.R. Balance – (Difference between Market value and Cost) |
| = | 60,000 – (3,10,000 – 4,00,000) | |
| Distributable Amount of I.F.R. | = | (-)30,000 |
| Amount to be Credited to Nitin’s Capital | = | 30,000 | X | 1 |
| 3 | ||||
| = | 10,000 |
| Amount to be Credited to Tarun’s Capital | = | 30,000 | X | 1 |
| 3 | ||||
| = | 10,000 |
| Amount to be Credited to Amar’s Capital | = | 30,000 | X | 1 |
| 3 | ||||
| = | 10,000 |
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T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
- Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
- Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
- Chapter No. 3 – Goodwill: Nature and Valuation
- Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
- Chapter No. 5 – Admission of a Partner
- Chapter No. 6 – Retirement/Death of a Partner
- Chapter No. 7 – Dissolution of a Partnership Firm
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 8 – Company Accounts – Accounting for Share Capital
- Chapter No. 9 – Company Accounts – Issue of Debentures
- Chapter No. 10 – Redemption of Debentures
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 1 – Financial Statements of a Company
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
- Chapter No. 4 – Accounting Ratios
- Chapter No. 5 – Cash Flow Statement
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
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