Partnership

Retirement/Death

Medium

common

In the case of a re-constitution of a partnership firm, if the value of decrease in investment exceeds the Investment Fluctuation Fund, the :-

Excess amount of loss will be debited to Revaluation Account.

Excess amount of loss will be credited to Revaluation Account.

Excess amount of gain will be debited to Revaluation Account.

Excess amount of gain will be credited to Revaluation Account.

✅ Correct Option: 1

Investment Fluctuation Fund is created to absorb losses arising from decrease in value of investments. During reconstitution, investments are revalued at their current market value.

When the decrease in investment value exceeds the available Investment Fluctuation Fund:

Understanding the treatment:

The Investment Fluctuation Fund will first absorb the loss to the extent of its balance. However, since the actual decrease is more than the fund balance, there remains an excess loss that needs to be accounted for.

This excess loss represents an actual loss for the firm that couldn't be covered by the fund. During reconstitution, all gains and losses on revaluation of assets and liabilities are recorded in the Revaluation Account.

Since it is a loss (decrease in asset value), it will be debited to Revaluation Account, as losses are always debited.

Journal Entry:

Investment Fluctuation Fund A/c          Dr.    (existing balance)
Revaluation A/c                          Dr.    (excess loss)
    To Investments A/c                          (total decrease)

For example, if investments decreased by ₹50,000 but IFF has only ₹30,000, then ₹30,000 will be transferred from IFF and the remaining ₹20,000 (excess loss) will be debited to Revaluation Account.

The excess amount of loss will be debited to Revaluation Account and shared by all partners in their old profit-sharing ratio.

2025: 3 June Shift 1

Steps involved in accounting treatment at the time of death/retirement of a partner -

(A) Adjustment of capital, if required

(B) Preparation of revaluation account, if required

(D) Settlement of the amounts due to retired / deceased partner

Choose the correct answer from the options given below:

2025: 14 May Shift 1

Which combination of statements are correct about Death of a partner-

(A) Ascertainment of new profit sharing ratio and gaining ratio

(B) Preparation of Realization Account

(D) Adjustment of capital, if required

Choose the correct answer from the options given below:

2026: 23 May Shift 2

X, Y and Z are partners sharing the profits in the ratio of 6:3:1. Y retires from the firm and his share is taken up by X and Z in the ratio of 3:2. The new profit sharing ratio of X and Z will be

2026: 29 May Shift 1

In the absence of any information regarding the profit sharing ratio in which the remaining partners acquire the share of the retiring/deceased partner, it is acquired in __________ .

2026: 23 May Shift 2

A, B and C are partners sharing profits in the ratio of 4 : 3 : 3. After all adjustments, on A's retirement with respect to general reserve, goodwill and revaluation etc., the balances in their capital accounts stood at Rs. 70,000, Rs. 60,000 and Rs. 50,000 respectively. It was decided that the amount payable to A would be brought by B and C in such a way as to make their capitals proportionate to their profit sharing ratio. After A's retirement, the new profit sharing ratio between B and C is 1 : 1. Calculate the amount to be brought by B and C respectively.

2026: 31 May Shift 1

Arrange the steps in order at the time of retirement of a partner.

A. Transfer of retired partner share of profit.

B. Calculation of goodwill.

C. Settlement of retiring partner capital.

D. Revaluation of assets & liabilities

Choose the correct answer from the options given below:

In the case of a re-constitution of a partnership firm, if the value of decrease in investment exceeds the Investment Fluctuation Fund, the :-

Solution

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