Step 1: Understanding the Concept:
Investment Fluctuation Reserve (IFR) is an appropriation of past profits created to cover potential declines in the market value of investments. Upon the death of a partner, any surplus in this reserve is a distributable profit.
Step 2: Detailed Explanation:
- If the market value of the investment falls, the reserve is used to offset that loss.
- Any remaining balance after covering the loss is considered "undistributed profit."
- According to accounting principles, all undistributed profits must be distributed among all partners (including the deceased partner) in their profit-sharing ratio at the time of the event.
Step 3: Final Answer:
The balance is credited to all partners’ capital accounts (B).