Question

Assertion (A): Under the fixed capital method, partners’ capital accounts always show a credit balance.
Reason (R): Under the fixed capital method, all items like share of profit or loss, interest on capital, drawings, interest on drawings are recorded in a separate account called partners’ current account.

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

Hint:

In the fixed capital method, current accounts capture all adjustments, while capital accounts remain unchanged.

Answer 1

The Correct Option is A

Under the fixed capital method, partners’ capital accounts remain unchanged and always show a credit balance. Transactions like interest on capital, drawings, and share of profits or losses are recorded in the current accounts. Thus, both Assertion (A) and Reason (R) are correct, and Reason (R) explains Assertion (A).