Answer based on following information

Azad and Babli are partners in a firm sharing profits and losses in the ratio of 2 : 1 Chintan is admitted into the firm with 1/4 share in profits. Chintan will bring in 30,000 as his capital and the capitals of Azad and Babli are to be adjusted in the profit sharing ratio. The Balance sheet of Azad and Babli as on December 31, 2016 (before Chintan's admission) was as follows:

It was agreed that:

(i) Chintan will bring in ₹12,000 as his share of goodwill premium.

(ii) Buildings were valued at ₹45,000, and Machinery at ₹23,000.

(iii) A provision for doubtful debts is to be created at 6% on debtors.

(iv) The capital accounts of Azad and Babli are to be adjusted by opening current accounts.

Current accounts of partners are reflected in books of accounts as per ________ method.

Fixed

The correct answer is Option (2) → Fixed

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the capitals of the partners shall remain fixed unless additional capital is introduced or a part of the capital is withdrawn as per the agreement among the partners.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.