Which of the following is the feature of fluctuating capital?

Each partner has one account, i.e. capital account under this method

The correct answer is Option (2) → Each partner has one account, i.e. capital account under this method.

Each partner has one account, i.e. capital account under this method is the feature of fluctuating capital 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.

OTHER OPTIONS

• Under this method, two separate accounts are maintained for each partner, viz., 'capital account' and 'current account.- It is a feature of the fixed capital method.

• Each partner has one account, i.e. current account under this method- A current account is one of the account made in the method of fixed capital method.

• The capital account balance remain unchanged unless there is addition or withdrawal of capital- It is feature of fixed capital method.

In the fixed capital method, the partners' capital remains unchanged unless there are agreed-upon introductions or withdrawals of capital. All financial aspects such as profit or loss share, interest on capital, drawings, and interest on drawings are recorded separately in the Partner's Current Account. Partner's current account is debited with items like interest on drawings, share in loss and credited with interest on capital, salary, commission etc. The capital accounts of the partners always maintain a fixed credit balance, except when there are capital changes. Withdrawal of capital is debited to capital account and additional capital introduced by partner is credited to capital account. In contrast, the partners' current accounts may show either a debit or credit balance. Therefore, this method involves maintaining two accounts for each partner: the capital account and the current account.