in chapter written test of dissolution of a firm (Accountancy) question no. 4 given as under:-
X and Y are partners in a firm sharing profits and losses equally. On December 31, 2010, they decided to dissolve the firm. Balance Sheet on that date is as under:
Balance Sheet
as on December 31, 2010
Liabilities
Amount
Rs
Assets
Amount
Rs
Creditors
50,000
Furniture
20,000
Investment Fluctuation Fund
10,000
Investment
30,000
Mr. X’s Loan
20,000
Debtors
40,000
Mrs. Y’s Loan
25,000
Stock
30,000
Mr. Z’s Loan
10,000
Bills Receivable
15,000
Capital:
Cash
25,000
X
20,000
Y
25,000
45,000
1,60,000
1,60,000
All assets (except cash) were realised at 10% less than their book value and all liabilities are paid at 5% discount. Realisation expenses of Rs 750 were paid by Mr. Y. Prepare Realisation Account.
my query is that: in answer by experts investment fluctuation fund was not considered as a liability and was not realized on the book value, I cannot understand the logic behind it, please clarify.
answer is as given below:-
Books of X and Y
Realisation Account
Dr.
Cr.
Particulars
Amount
Rs
Particulars
Amount
Rs
Furniture
20,000
Creditors
50,000
Investment
30,000
Investment Fluctuation Fund
10,000
Debtors
40,000
Mrs. Y’s Loan
25,000
Stock
30,000
Mr. Z’s Loan
10,000
Bills Receivable
15,000
Cash A/c:
Cash A/c:
Furniture
18,000
Creditors
47,500
Investment
27,000
Mrs. Y’s Loan
23,750
Debtors
36,000
Mr. Z’s Loan
9,500
80,750
Stock
27,000
Mr. Y’s Capital A/c (Expenses)
750
Bills Receivable
13,500
1,21,500
2,16,500
2,16,500
Payment of Investment Fluctuation Fund is not made because it is not a claimed by the outsiders. It is treated as Provision for Doubtful Debts at the time of dissolution of the firm. It is neither paid like provident fund and creditors nor distributed as General Reserve among the partners because it a specific reserve which is available only to compensate loss in the value of investments. At time of dissolution, besides all liabilities, provisions and specific reserves it is also transferred to the credit side of Realisation Account and its effect depicts in profit or loss on revaluation of assets and repayment of liabilities.