When a firm is dissolved, the Balance of Investment Account and Balance of Investment Fluctuation Fund Account, shown by Firm's Balance Sheet are transferred into ..................... and into ...............respectively:-
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Debit Side of Realisation Account, Credit side of Realisation Account
On the dissolution of a partnership firm, all assets (except Cash/Bank and Partner's Loan) and all external liabilities/provisions are transferred to the Realisation Account to close their books and determine the profit or loss on winding up.
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Balance of Investment Account (Asset):
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An Asset (like Investment) has a Debit balance. To close it, it is credited.
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It is transferred to the Debit Side of the Realisation Account.
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Entry: Realisation A/c (Dr.) to Investment A/c (Cr.)
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Balance of Investment Fluctuation Fund Account (Specific Provision/Reserve):
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The Investment Fluctuation Fund (IFF) is a provision created against the fall in the market value of investments. As it is directly related to a Realisable Asset (Investment), it is treated like an external liability or provision for the purpose of dissolution. It has a Credit balance. To close it, it is debited.
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It is transferred to the Credit Side of the Realisation Account.
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Entry: Investment Fluctuation Fund A/c (Dr.) to Realisation A/c (Cr.)
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