Journal entry
Querist : Anonymous
To Bank
To Fixed Asset Ac.
2) To Fixed Asset Ac. Dr
To Party Ac.
2) Party Ac.Dr.
To Bank Ac.
Or
1) Reserve Fund Ac Dr
To Fixed Asset Ac.
2) To Fixed Asset Ac. Dr
To Bank Ac.
1. Fixed Assets A/c Dr To, Party/Bank A/c
2. Reserve Fund (Specific) A/c Dr To General Reserve
If you carefully see the entry no 1,
It is crediting Bank/Cash account which are part of current assets.
Since the query was regarding purchase out of Reserve, meaning purchased out of reserve meant for the purpose of purchase of assets, the second entry is passed.
It will be normal entries. If you had credited any specific reserve for asset purchase after the purchase is completed it needs to be reversed.
Question: A business wants to reserve funds for a future building construction project. It credits a Building Reserve fund for INR 5 million and debits retained earnings for the same amount. The building is then constructed at a cost of INR 4.9 million, which is accounted for as a debit to the fixed assets account and a credit to cash. What happens when the building is completed?
Answer: The original entry is reversed, where INR 5 million will be debited to the building reserve account and credited to the retained earnings account.
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