On Dissolution of a firm, Investment fluctuation reserve appearing in the balance sheet will be:

Credited to all Partners' Capital A/c in their profit sharing ratio

The correct answer is option 4- Credited to all Partners' Capital A/c in their profit sharing ratio

Investment Fluctuation Reserve is a reserve created out of profits to cover possible losses on investments. Hence, it is in the nature of an accumulated profit.

At the time of dissolution: All reserves and accumulated profits are distributed among partners in their profit sharing ratio.

Therefore: IFR is credited to Partners’ Capital Accounts.

When is Investment Fluctuation Reserve (IFR) transferred to Realisation A/c?

Investment Fluctuation Reserve is transferred to the Realisation Account only when it is treated as a provision against investments, i.e., it is meant to adjust the value of investments at the time of dissolution.

This happens in the following cases:

1. When investments are also transferred to Realisation A/c

• If investments appear in the Balance Sheet and are being realised (sold),
• Then IFR is transferred to Realisation A/c (credit side) to adjust their book value.

2. When IFR is specifically used to cover loss/profit on sale of investments: IFR acts like a valuation adjustment, not just a reserve.

If no such adjustment or linkage is given in the question, IFR is treated as a reserve and transferred to Partners’ Capital Accounts.