Question

Which of the following statement is not true for fixed capital account?

• A. The capital account balance remains unchanged unless there is addition to or withdrawal of capital
• B. The capital account accounts always show a credit balance
• C. Each partner has only one account ie capital account, under this method
• D. All adjustments for drawings, salary, interest on capital etc are made in current accounts

Hint:

In fixed capital method, recurring items go into the current account — capital account stays unchanged unless capital changes.

Answer 1

The Correct Option is C

Step 1: Grasp the fixed capital method.
With the fixed capital method, two distinct accounts are kept for each partner:
The Capital Account (for initial and subsequent capital contributions), and
The Current Account (for all routine adjustments, including salary, drawings, interest, etc.).
Step 2: Pinpoint the erroneous statement. Statement (c) incorrectly asserts that each partner possesses a single account under the fixed capital method. This characteristic is actually associated with the fluctuating capital method.