Distinguish between the Fixed Capital Method and the Fluctuating Capital Method of maintaining Partners' Capital Accounts.

Question

Accepted Answer

| Basis | Fixed Capital Method | Fluctuating Capital Method |
|---|---|---|
| Number of accounts per partner | Two — Capital Account and Current Account | One — Capital Account only |
| Behaviour of the Capital Account | Remains fixed, changing only on fresh introduction or permanent withdrawal of capital | Changes (fluctuates) every year with every adjustment |
| Where drawings/interest/salary/profit share are recorded | In the Current Account | In the Capital Account itself |
| Possibility of a debit balance | The Capital Account almost never shows one; the Current Account can | The Capital Account itself can show a debit balance after heavy drawings or losses |
| Applies by default when the problem/deed is silent? | No — must be expressly agreed | Yes — this is the presumed method |
| Balance Sheet presentation | Capital and Current Account balances shown separately | A single Capital Account balance shown per partner | …

Situation	Current A/c balance
Credits (profit share, interest on capital, salary) exceed drawings	Credit balance (shown on liabilities side)
Drawings + interest on drawings exceed credits	Debit balance (shown on assets side)
…

Q.Distinguish between the Fixed Capital Method and the Fluctuating Capital Method of maintaining Partners' Capital Accounts.

Concept understanding — Methods of Maintaining Partners' Capital Accounts

Basis	Fixed Capital Method	Fluctuating Capital Method
Number of accounts per partner	Two — Capital Account and Current Account	One — Capital Account only
Behaviour of the Capital Account	Remains fixed, changing only on fresh introduction or permanent withdrawal of capital	Changes (fluctuates) every year with every adjustment
Where drawings/interest/salary/profit share are recorded	In the Current Account	In the Capital Account itself
Possibility of a debit balance	The Capital Account almost never shows one; the Current Account can	The Capital Account itself can show a debit balance after heavy drawings or losses
Applies by default when the problem/deed is silent?	No — must be expressly agreed	Yes — this is the presumed method
Balance Sheet presentation	Capital and Current Account balances shown separately	A single Capital Account balance shown per partner

Q.Distinguish between the Fixed Capital Method and the Fluctuating Capital Method of maintaining Partners' Capital Accounts.

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