Practicing Success
Which of the following is false for Fluctuating Capital account of Partnership? |
Each partner has two accounts, i.e., capital account and current account All adjustments for drawings, salary, interest on capital, etc. are made in the capital accounts The balance of capital accounts fluctuates from year to year The capital account may sometimes show a debit balance |
Each partner has two accounts, i.e., capital account and current account |
The correct answer is Option (1) - Each partner has two accounts, i.e., capital account and current account. Partners have 2 accounts named capital account & current account in case of fixed capital method not fluctuating 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. |