Question

Assertion (A): Partners’ current accounts maintained under ‘Fixed Capital Method’ may show a debit or a credit balance. Reason (R): In the ‘Fixed Capital Method’, all items like share of profit or loss, interest on capital, drawings, interest on drawings etc. are recorded in the partners’ capital accounts. Choose the correct option from the following:

• A. Assertion (A) and Reason (R) are correct, but Reason (R) is not} the correct explanation of Assertion (A).
• B. Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).
• C. Assertion (A) is correct, but Reason (R) is not correct.
• D. Both Assertion (A) and Reason (R) are not correct.

Hint:

In the Fixed Capital Method, partners’ current accounts are used to adjust transactions like drawings, profit/loss allocation, and interest on capital, while capital accounts remain unchanged except for capital introduced or withdrawn.

Answer 1

The Correct Option is C

Under the Fixed Capital Method, partners' current accounts reflect debit or credit balances from transactions such as drawings, profit shares, and interest on drawings. These adjustments are recorded in the current accounts, not the capital accounts. The provided reason is inaccurate because, with the Fixed Capital Method, these items are adjusted within the current accounts, not the capital accounts.