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
An Investment Fluctuation Fund is a reserve built out of past profits. Nothing in the case says the investments have fallen in value, so the whole fund is an accumulated profit. Accumulated profits belong to the old partners only and are credited to their capital accounts in the old ratio.
Option (1) Transfer to credit side of All Partner’s Capital A/c — Incorrect. The new partner has no share in profits earned before his admission.
Option (2) Transfer to liability side of New Balance Sheet — Incorrect. The fund is not carried forward; it is distributed among the old partners.
Option (3) Transfer to Debt side of Revaluation A/c — Incorrect. The Revaluation Account records changes in the values of assets and liabilities, not reserves.
NCERT (2026-27 edition): |