Which statement is not true about Capital Accounts of Partner-

The correct answer is Option (2) → Under the fluctuating capital method, two accounts, i.e. capital account and current account are maintained for each partner.

The two methods differ in the number of accounts kept for each partner. The fixed capital method keeps two (capital and current), so that the capital stays fixed; the fluctuating capital method keeps only one, and every adjustment goes straight into it. Option (2) gives the fluctuating method the two accounts of the fixed method.

• Option (1) 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the capitals of the partners shall remain fixed unless additional capital is introduced or a part of the capital is withdrawn as per the agreement among the partners. — A true statement. Profits, drawings and interest go to the current account, so the capital balance does not move.

• Option (3) Under the fixed capital method, 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. — A true statement. A current account with a debit balance is an amount owed by the partner and is shown on the assets side.

• Option (4) Under the fluctuating capital method, only one account, i.e. capital account is maintained for each partner. — A true statement. That single account is why its balance fluctuates.