When a firm is dissolved, the Balance of Investment Account and Balance of Investment Fluctuation Fund Account, shown by Firm's Balance Sheet are transferred into ............... and into ............... respectively:-

When a firm is dissolved, all assets and liabilities need to be transferred to the Realisation Account for settlement.

Investment Account is an asset appearing on the assets side of the Balance Sheet. All assets are transferred to the Debit side of Realisation Account as they represent the book value of items to be realized.

Investment Fluctuation Fund Account is a reserve/provision appearing on the liabilities side of the Balance Sheet. It was created to absorb losses on investments. During dissolution, this fund is no longer required as investments are being realized. Therefore, it is transferred to the Credit side of Realisation Account, effectively being used to offset any loss on realization or adding to profit on realization.

The journal entries would be:

For Investment Account:

Realisation A/c Dr.

To Investment A/c

For Investment Fluctuation Fund:

Investment Fluctuation Fund A/c Dr.

To Realisation A/c

This treatment ensures that the actual profit or loss on realization of investments is properly calculated after adjusting for the fluctuation fund that was specifically maintained for this purpose.

Correct Option: 1 (Debit Side of Realisation Account, Credit side of Realisation Account)