Q.Using the same data as the previous illustration (P and Q, capitals ₹4,00,000 and ₹3,00,000, interest on capital @5% p.a., salary to Q ₹3,000 per month, drawings P ₹20,000 and Q ₹15,000, interest on drawings P ₹800 and Q ₹600, divisible profit ₹1,20,000 shared equally), prepare the Partners' Capital Accounts assuming the capitals are Fluctuating instead of Fixed.

With fluctuating capitals there is no separate Current Account at all — every single item that would otherwise sit in a Current Account is instead recorded directly inside the one Capital Account each partner has.

Partners' Capital Accounts (Fluctuating Capital Method)

Debit side:

Credit side:

Reconcile directly with Illustration 7's Fixed Capital Method result: P's total there was Capital ₹4,00,000 + Current A/c ₹59,200 = ₹4,59,200, and Q's was ₹3,00,000 + ₹95,400 = ₹3,95,400 — identical to the single Capital Account balances comput …

The commonest error under the Fluctuating Capital Method is opening a Current Account anyway out of habit, splitting the entries across two accounts when the whole point of this method is that only on …