A,B,C are partners in the firm sharing profits and losses in the ratio 4:3:2 they decide to share profits - Accountancy - Reconstitution- Change in Existing Profit Sharing Ratio

Question

A,B,C are partners in the firm sharing profits and losses in the
ratio 4:3:2 they decide to share profits and losses in the ratio
2:3:4 with the effect from 1st april 2008 following is an extract
of their balance sheet as at 31st march 2008:
invetment fluctuation reserve 54,000
investment (at cost) 6,00,000
show the accounting treatment if the market value of investments is
5,91,000

Monika Sharma · Accepted Answer

Hi 
Riya,

When the market value of investments is less than the book value,
then investments account is credited with the value of investments
decreased, thus, in this case the following Journal entry will be
made

Journal

Date
Particulars
L F
Debit
Amount
(Rs)
Credit
Amount
(Rs)

Investment Fluctuation Reserve
A/c
Dr

54,000

To Investments A/c

9,000

To A's Capital A/c

20,000

To B's Capital A/c

15,000

To C's Capital A/c

10,000

(Investments Fluctuation Reserve is utilised for
decrease in the value of investments and remaining amount is
distributed among the old partners in their old
ratio)

Investments will be shown at 
Rs 
5,91,000 on the Assets side of the Balance Sheet

Working Notes:
Calculation of amount distributed among the partners

Amount left in Investment Fluctuation Reserve = 54,000 - 9,000 = Rs 45,000A's Capital Account will be credited with= 45,000 × 49 = Rs 20,000B's Capital Account will be credited with= 45,000 × 39 = Rs 15,000C's Capital Account will be credited with= 45,000 × 29 = Rs 10,000
Hope this answers your query

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Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
	Investment Fluctuation Reserve A/c	Dr.		54,000
	To Investments A/c				9,000
	To A's Capital A/c				20,000
	To B's Capital A/c				15,000
	To C's Capital A/c				10,000
	(Investments Fluctuation Reserve is utilised for decrease in the value of investments and remaining amount is distributed among the old partners in their old ratio)