What is the use of investment reserve fund.
suppose it is given investment reserve fund = 15000
and market value of investment has fallen from 150000 to 130000. what will be the treatment to the above situation.
It is also written in the question that u dont have to make provision for the above fall down of value i.e u cant debit P&L A/C
Investment Reserve Fund is maintained by companies to bring the value of investments to market price if it falls below their book value at the end of financial year. Now in your question the value of investment has fallen by Rs.20000 while the Investment Reserve Fund is only Rs.15,000/-. The journal entry for this purpose will be:
Investment Reserve Fund A/c Dr. 15,000
Profit & Loss A/c Dr. 5,000
To Investment A/c 20,000
In this manner the investment will come down to their market value i.e. Rs.1,30,000.
Investment Reserve Fund is maintained by companies to bring the value of investments to market price if it falls below their book value at the end of financial year. Now in your question the value of investment has fallen by Rs.20000 while the Investment Reserve Fund is only Rs.15,000/-. The journal entry for this purpose will be:
Investment Reserve Fund A/c Dr. 15,000
Profit & Loss A/c Dr. 5,000
To Investment A/c 20,000
In this manner the investment will come down to their market value i.e. Rs.1,30,000.
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