The following are the features of the fluctuating capital method by w…

The following are the features of the fluctuating capital method by which the capital accounts of partners can be maintained.

(A) Under the fluctuating capital method, only one account, i.e. capital account is maintained for each partner.
(B) All the adjustments such as share of profit and loss, interest on capital, drawings, interest on drawings, etc. are recorded directly in the capital accounts of the partners.
(C) the capital of the partners shall remain fixed unless additional capital is introduced or a part of the capital is withdrawn as per the agreement between the partners.
(D) The capital account may sometimes show a debit balance.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → (A), (B) and (D) only

Under the fluctuating capital method there is one account per partner, and every item affecting the partner passes through it, so its balance keeps changing.

(A) Under the fluctuating capital method, only one account, i.e. capital account is maintained for each partner. Correct. No separate current account is opened.

(B) All the adjustments such as share of profit and loss, interest on capital, drawings, interest on drawings, etc. are recorded directly in the capital accounts of the partners. Correct. That is why the balance fluctuates from year to year.

(C) the capital of the partners shall remain fixed unless additional capital is introduced or a part of the capital is withdrawn as per the agreement between the partners. Incorrect. This describes the fixed capital method, where the adjustments go to a separate current account.

(D) The capital account may sometimes show a debit balance. Correct. Losses and drawings are debited to the same account, so if they exceed the capital and credits, the balance turns debit; a fixed capital account always shows a credit balance.

NCERT (2026-27 edition):
Maintenance of Capital Accounts of Partners – “… (b) Fluctuating Capital Method: Under the fluctuating capital method, only one account, i.e. capital account is maintained for each partner. All the adjustments such as share of profit and loss, interest on capital, drawings, interest on drawings, salary or commission to partners, etc are recorded directly in the capital accounts of the partners. This makes the balance in the capital account to fluctuate from time to time. That’s the reason why this method is called fluctuating capital method. In the absence of any instruction, the capital account should be prepared by this method.”

NCERT (2026-27 edition):
Maintenance of Capital Accounts of Partners – “… (a) Fixed Capital Method: Under the fixed capital method, the capitals of the partners shall remain fixed unless additional capital is introduced or a part of the capital is withdrawn as per the agreement among the partners. All items like share of profit or loss, interest on capital, drawings, interest on drawings, etc. are recorded in a separate accounts, called Partner’s Current Account. The partners’ capital accounts will always show a credit balance, which shall remain the same (fixed) year after year unless there is any addition or withdrawal of capital.”