Question

Assertion (A): Partners’ current accounts maintained under the ‘Fixed Capital Method’ may show a debit or a credit balance. Reason (R): In the ‘Fixed Capital Method’, all items like share of profit or loss, interest on capital, drawings, interest on drawings, etc., are recorded in the partners’ capital accounts.
Choose the correct option from the following:

• A. Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
• B. Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).
• C. Assertion (A) is correct, but Reason (R) is not correct.
• D. Both Assertion (A) and Reason (R) are not correct.

Hint:

Under the Fixed Capital Method, the capital accounts remain unchanged, and all adjustments for profit, loss, interest, or drawings are made through the current accounts of partners.

Answer 1

The Correct Option is C

1. Assertion (A): Under the Fixed Capital Method, the capital account of partners remains unchanged unless additional capital is introduced or withdrawn. All transactions like share of profit or loss, interest on capital, drawings, and interest on drawings are recorded in the partners’ current accounts. These current accounts may show either a debit or a credit balance based on the net outcome of the transactions. Thus, the assertion is correct. 2. Reason (R): The statement in Reason (R) incorrectly describes the Fluctuating Capital Method, where all transactions are directly adjusted in the partners' capital accounts. Under the Fixed Capital Method, such transactions are not recorded in the capital accounts but in the current accounts. Hence, the reason is not correct. 3. Conclusion: While Assertion (A) is true, Reason (R) is incorrect as it misrepresents the Fixed Capital Method.