Practicing Success
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| If there is an increase in market value of investments of the firm whereas book value is less than market value and there is an investment fluctuation reserve in the books of partnership firm, then what will be done with this increased value of investments? |
Difference of market value and book value is credited to revaluation account Difference of market value and book value is debited to revaluation account Full amount of market value of investments is transferred to revaluation account Full amount of book value of investments is transferred to revaluation account |
| Difference of market value and book value is credited to revaluation account |
| Investment Fluctuation Reserve is a reserve created out of the profits to meet the fall in the market value of investments. Excess of Investment Fluctuation Reserve over the difference between book value and market value is credited to old partners in their old profit sharing ratio. When book value and market value are the same, the amount of IFR is transferred to Old partner’s capital or Current Accounts in their old profit sharing ratio when the market value of the investment is less than the book value. If fall in value is less than the reserve, IFR, to the extent of fall in the value, is transferred to Investment Account and the balance is distributed among the old partners in their old profit sharing ratio If the fall in value is equal to reserve, the amount of IFR is transferred to Investment Account and no amount is distributed among the old partners If the fall in value is more than the reserve, the amount in excess of the amount of Investment Fluctuation Reserve is debited to Revaluation Account. When there is an increase in the market value of the investment, the entire reserve is distributed to old partners in their old profit-sharing ratio and an increase in value is credited to Revaluation Account. |
