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# Accounting Treatment of Investment Fluctuation Fund in case of Retirement of a Partner

A reserve that is created out of profit to meet the change in the market value of the investment is termed an Investment Fluctuation Fund. Simply put, an amount is kept aside in the reserve in name of fluctuation to meet the changes in the value of the investment. The difference between the book value and the market value of the investment is adjusted through the Investment Fluctuation Fund. A change in value can or cannot be made against this reserve. However, the Accounting treatment of an Investment Fluctuation Fund differs for the situations against the difference in market value and cost of investment. During the change in profit sharing ratio or reconstitution of the firm due to a change in profit sharing ratio among existing partners, admission, retirement, death of a partner, or dissolution of the partnership, the amount of Investment Fluctuation Fund appears in the Balance Sheet and is distributed among the partners in the old profit sharing ratio.

### Accounting Treatment of Investment Fluctuation Fund:

#### Illustration 1:

Peter, Harry, and George are partners in the firm sharing profit and losses in the ratio 3:2:1. Harry decided to retire from the company, and the remaining partners, Peter and George, decided to share future profits and losses equally. On the date of Retirement, the Balance Sheet showed an Investment Fluctuation Fund of ₹12,900 on the liability side and an Investment of ₹18,000 (at cost). Pass necessary Journal entries.

#### Illustration 2:

Shruti, Shreya, and Shrishti are partners in the firm sharing profit and losses in the ratio 2:3:2. Shrishti decided to retire from the company, by selling her share of profits to Shruti and Shreya in the ratio of 3:2. On the date of Retirement, the Balance Sheet showed an Investment Fluctuation Fund of ₹14,000 in the liability side and an Investment of ₹19,000 (at cost). Pass necessary Journal entries.

#### A. Fall in the value is less than Investment Fluctuation Fund:

i. Fall in Investment value adjusted through Investment Fluctuation Fund:

ii. Excess of Investment Fluctuation Fund distributed among all partners:

#### Illustration 1:

Sayeba, Sukant, and Nupur are three partners in a firm sharing their profits and losses in the ratio 6:5:4. Nupur retired from the company, and the remaining partners decided to share their future profits and losses in the ratio 2:3. On the date of Retirement, the Balance Sheet showed an Investment Fluctuation Fund of ₹15,000 in the liability side and an Investment of ₹20,000 (at cost). The market value of the investment on the date of the Balance Sheet was ₹10,400. Pass necessary journal entries for the same.

#### Illustration 2:

Gaurav, Vaibhav, and Kashish are partners in a firm sharing their profits and losses in the ratio 2:3:4. Vaibhav retired from the company and, the remaining partners decided to share their future profits and losses equally. On the date of Retirement, the Balance Sheet showed an Investment Fluctuation Fund of ₹5,700 in the liability side and an Investment of ₹12,000 (at cost). The market value of the investment on the date of the Balance Sheet was ₹9,000. Pass necessary journal entries for the same.

#### Solution:

B. Fall in the value is equal to Investment Fluctuation Fund:

#### Illustration 1:

Nisha, Kanika, and Khushboo are three partners in a firm sharing their profits and losses in the ratio 6:5:4. Nisha retired from the company, and the remaining partners decided to share their future profits and losses equally. On the date of Retirement, the Balance Sheet showed an Investment Fluctuation Fund of ₹15,000 on the liability side and an Investment of ₹50,000 (at cost). The market value of the investment on the date of the Balance Sheet was ₹35,000. Pass necessary journal entries for the same.

#### Illustration 2:

Radhika, Sumit, and Hardik are three partners in a firm sharing profits and losses in the ratio of 1:1:1. Sumit decided to retire from the company, and the remaining partners decided to share their future profits and losses in the ratio of 2:1. On the date of Retirement, the Balance Sheet showed an Investment Fluctuation Fund of ₹2,900 in the liability side and an Investment of ₹18,000 (at cost). The market value of the investment on the date of the Balance Sheet was ₹15,100. Pass necessary journal entries for the same.

#### C. Fall in the value is more than investment fluctuation fund:

i. Loss on investment value adjusted from Investment Fluctuation Fund and Revaluation A/c:

ii. Expense on Revaluation charged from all Partner’s Capital Account:

#### Illustration 1:

Satyam, Kamal, and Suraj are partners in a firm sharing their profits and losses in the ratio 2:1:2. Satyam retired from the company, and the remaining partners decided to share their future profits and losses in the ratio 3:4. On the date of Retirement, the Balance Sheet showed an Investment Fluctuation Fund of ₹11,400 in the liability side and an Investment of ₹50,000 (at cost). The market value of the investment on the date of the Balance Sheet was ₹37,000. Pass necessary journal entries for the same.

#### Illustration 2:

Akanksha, Sahil, and Vishal are partners in a firm sharing their profits and losses equally. Sahil decided to retire from the company, and the remaining partners, Akanksha and Vishal decided to share their future profits and losses in the ratio 2:3. On the date of Retirement, the Balance Sheet showed an Investment Fluctuation Fund of ₹21,200 on the liability side and an Investment of ₹80,000 (at cost). The market value of the investment on the date of the Balance Sheet was ₹45,000. Pass necessary journal entries for the same.

#### Case 3: When the market value of the investment is more than the book value:

A. Investment Fluctuation Fund distributed among all partners:

B. Profit on Investment value credited to Revaluation Account:

C. Profit on Revaluation distributed among all partners:

#### Illustration 1:

Megha, Supriya, and Tina are partners in a firm sharing their profits and losses in the ratio 4:3:3. Supriya decided to retire from the company and the remaining partners, Megha and Tina decided to share their future profits and losses in the ratio 6:4. On the date of Retirement, the Balance Sheet showed an Investment Fluctuation Fund of ₹5,000 in the liability side and an Investment of ₹18,500 (at cost). The market value of the investment on the date of the Balance Sheet was ₹25,000. Pass necessary journal entries for the same.

#### Illustration 2:

Harshita, Ishika, and Yaman are partners in a firm sharing their profits and losses in the ratio of 2:3:5. Harshita decided to retire from the company, and the remaining partners decided to share their future profits and losses in the ratio of 3:4. On the date of Retirement, the Balance Sheet showed an Investment Fluctuation Fund of ₹15,000 in the liability side and an Investment of ₹29,000 (at cost). The market value of the investment on the date of the Balance Sheet was ₹34,000. Pass necessary journal entries for the same.

#### Solution:

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