At the time of admission of a partner following was the extract of Balance Sheet.

What entry will be passed?

Investment Fluctuation Reserve A/c Dr.    ₹2,00,000
                  To Investment A/c                                ₹40,000
                  To Partners Capital A/c (Old Ratio)         ₹1,60,000

The correct answer is Option (1).

Investment Fluctuation Reserve A/c Dr.  ₹2,00,000
                  To Investment A/c                                ₹40,000
                  To Partners Capital A/c (Old Ratio)     ₹1,60,000

Market value decrease = 640000 - 600000
                                 = ₹40000
This ₹40000 will be taken from reserve and remaining reserve is transferred to remaining partners in old ratio.

Reserve = 200000
Remaining = 200000 - 40000
                = 160000

So, following journal entry passed for it-
Investment Fluctuation Reserve A/c Dr.    ₹2,00,000
                  To Investment A/c                                ₹40,000
                  To Partners Capital A/c (Old Ratio)         ₹1,60,000