Under the fixed capital method, the capital of the partners shall remain fixed unless additional capital is introduced or a part of the capital is withdrawn as per the agreement between the partners. Which among the following is NOT the feature of the fixed capital method?

Under this method, two capital accounts are maintained for each partner.

The correct answer is Option (3) → Under this method, two capital accounts are maintained for each partner.

Option 3 is incorrect because under the fixed capital method, two separate accounts are maintained for each partner, namely the Partner’s Capital Account and the Partner’s Current Account. The statement wrongly says that “two capital accounts” are maintained, which is not correct terminology. A Current Account is different from a Capital Account. The Capital Account remains fixed except for permanent changes in capital, while all adjustments such as drawings, interest on capital, salary, and share of profit are recorded in the Current Account. Therefore, Option 3 is not a correct feature of the fixed capital method.

• Option 1 (Credit Balance): This is a true feature. Because withdrawals are usually made from the Current Account and not the Capital Account, the Capital Account itself almost always maintains a credit balance.

• Option 2 (Adjustments in Current Account): This is a true feature. To keep the capital "fixed," all operational adjustments like interest on capital, salary, and drawings are funneled through the Current Account.

• Option 4 (Debit or Credit Balance): This is a true feature. Since the Current Account handles all the fluctuations, it can easily fall into a debit balance (if drawings exceed profits/salary) or remain in a credit balance.

 NCERT: "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the capitals of the partners shall remain fixed unless additional capital is introduced or a part of the capital is withdrawn as per the agreement among the partners.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. The partners’ current account on the other hand, may show a debit or a credit balance. Thus under this method, two accounts are maintained for each partner viz., capital account and current account, While the partners’ capital accounts shall always appear on the liabilities side in the balance sheet, the partners’ current account’s balance shall be shown on the liabilities side, if they have credit balance and on the assets side, if they have debit balance."