Choose the correct statement in respect of the Fixed Capital Method for a Partnership Firm:-
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Closing Balance of Partners’ Capital Account will always be a credit.
Under the fixed capital method each partner has two accounts. The capital account holds only the capital itself and changes only when capital is added or withdrawn, so it always shows a credit balance. Everything else (profit or loss, interest, salary, drawings) goes to the current account, which can end with a debit, a credit or a nil balance.
Why the other options are incorrect
Option (1) Closing Balance of Partners’ Current Account will never be a zero. — Incorrect. If a partner’s credits and debits for the year happen to cancel out, his current account can close at zero.
Option (2) Closing Balance of Partners’ Capital Account may be a debit or may be a credit. — Incorrect. A debit-or-credit balance describes the current account, not the fixed capital account.
Option (4) Closing Balance of Partners’ Current Account will never be a credit. — Incorrect. A current account shows a credit balance whenever a partner’s profit share and interest exceed his drawings.
NCERT (2026-27 edition): |