Which of the following is the feature of Fixed Capital Method in Partnership Accounts?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → The capital accounts always show a credit balance
Under the fixed capital method, each partner has a capital account that changes only when capital is added or permanently withdrawn, and a separate current account for profits, drawings, interest and salary. Because only capital sits in it, the capital account always shows a credit balance; the current account can be debit or credit.
Why the other options are incorrect
Option (1) Each partner has one account — Incorrect. The fixed capital method keeps two accounts for each partner, capital and current.
Option (3) The balance of the capital account fluctuates from year to year — Incorrect. That is the mark of the fluctuating capital method.
Option (4) In the absence of any instruction, the capital account should be prepared by this method — Incorrect. When nothing is said, capital accounts are prepared by the fluctuating capital method.
NCERT (2026-27 edition): |