The Balance sheet of Himanshu, Pranav and Tushar who were sharing profits in proportion to their capital stood as follows:
| Balance Sheet as on 31 March 2022 |
|||
| Liabilities | Rs | Assets | Rs |
| Sundry Creditors | 25,000 | Land and Building | 35,000 |
| Investment Fluctuation Fund | 5,000 | Machinery | 45,500 |
| Bills Payable | 10,000 | Stock | 13,000 |
|
Capital: |
70,000 | Debtors | 6,000 |
| Investment | 5,000 | ||
| Bank | 4,000 | ||
| Profit and loss A/c | 1,500 | ||
| 1,10,000 | 1,10,000 | ||
Addition Information:
(a) On 1st April 2022, they admitted Rachit into partnership for 1/6th share in future profit.
(b) Rachit will bring ₹25,000 for capital and ₹15,000 for goodwill.
(c) A provision for doubtful debts of 7% was to be made.
(d) Land and building is to be appreciated to 120%.
(e) Machinery is decreased by ₹1,500.
On the basis of above case give answer to question:
Select the treatment of the Investment Fluctuation fund on the admission of Rachit.
Answer & explanation
Correct answer: option 4
The correct answer is option 4- Transfer to Credit side of Old Partner's Capital A/c.
Investment Fluctuation fund on the admission of Rachit is transferred to Credit side of Old Partner's Capital A/c
As there is no fall in market value of investments so the investment fluctuation fund is distributed between old partners in their old ratio.
Old ratio between old partners is capital ratio which means 35,000:21,000:14,000
= 5:3:2
Himanshu = 5,000 x 5/10
= 2,500
Parnav = 5,000 x 3/10
= 1,500
Tushar = 5,000 x 2/10
= 1,000
The journal entry for this -
Investment Fluctuation Fund Dr. ₹5,000
To Himanshu's Capital A/c ₹2,500
To Pranav's Capital A/c ₹1,500
To Tushar's Capital A/c ₹1,000