Why investment fluctuation reserve is not credited to partner's capital a/c in case of dissolution of firm?
IFF is transferred to the credit side of the Realisation Account, if and only if, Investments appear on the Assets side of the given Balance Sheet. Else, IFF is transferred to the credit side of the Partner’s Capital Account.
Investments made by a concern are subject to market fluctuations and thus, the value of an investment can any time decrease suddenly in the market.
So Investment Fluctuation Reserve is maintained to overcome any sudden loss incurred due to a sudden fall in the realizable value of Investments. It acts as a cushion against losses and saves the concern from impact of a sudden loss.
At the time of Dissolution, any Investment Fluctuation Reserve arising in the Balance Sheet is transferred to the Realization A/c.
The Journal Entry for the same is:
Investment Fluctuation Reserve A/c - Dr.
To Realization A/c
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