At the time of change in profit sharing ratio, what will be the impact of reduction in the value of investment by 20% assuming existing book value of investments in balance sheet as Rs. 2,40,000 and there is an investment fluctuation reserve existing in balance sheet at Rs. 30,000?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Revaluation Loss of Rs. 18,000
An Investment Fluctuation Reserve is kept to absorb a fall in the value of investments, so it is set against the fall first, and only the balance is a revaluation loss.
Fall in investments = 20% of Rs. 2,40,000 = Rs. 48,000
Investment Fluctuation Reserve already held = Rs. 30,000
Revaluation loss = Rs. 48,000 − Rs. 30,000 = Rs. 18,000