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.
Choose the correct alternative from the following:

• 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:

The fixed capital method separates capital contribution from operational transactions, simplifying record-keeping.

Answer 1

The Correct Option is A

Under the fixed capital method, only the initial capital contribution remains in the capital account. All other transactions (e.g., profit, loss, interest) are recorded in the current account. This ensures the capital account always shows a credit balance. Hence, both Assertion (A) and Reason (R) are correct, and Reason (R) explains Assertion (A).