Capital Accounts

Under fixed capital method profit share goes to current account. Recording it in capital account will change capital.

Under fluctuating method amounts allowed to partner are added and amounts charged to partner are deducted. This is the correct calculation base.

Interest on drawings is recovered from partner so it is debited in current account. Other options are generally credited.

Interest on capital is allowed to partner so it is credited in current account. Drawings loss and interest on drawings are debited.

To make capitals equal, B must raise his capital up to A’s capital.
Required additional capital = ₹ 68,000 − ₹ 60,000 = ₹ 8,000.

The governing concept is equalisation of fixed or agreed capital balances. A's capital is ₹52,000, so B must reduce his ₹60,000 balance to ₹52,000. The required withdrawal is calculated as ₹60,000 − ₹52,000 = ₹8,000. Therefore, option A is correct. ₹52,000 is the target balance, while ₹60,000 is B's original balance, not the withdrawal.

If capital account shows only permanent changes and regular items go to current account it is fixed capital method. Remember this identification.

To find opening capital subtract profit from closing capital and add drawings. Eighty six thousand minus ten thousand plus six thousand equals eighty two thousand.

Deduct additional capital from closing capital and add back loss. Seventy thousand minus ten thousand plus five thousand equals sixty five thousand.

Additional capital is permanent contribution so it is credited to capital account. Other items go to current account.

Withdrawal of capital reduces permanent capital so it is debited to capital account. Regular income items go to current account.

Debit balance indicates amount may be recoverable from partner. It often arises from excess drawings or heavy loss.

The governing concept is the liability aspect of owners’ capital in a partnership. Capital contributed by partners becomes part of the firm’s resources, but the firm is a separate accounting entity for recording purposes and must ultimately account for the partners’ claims. The amount represents money or assets belonging to the partners that are invested in the business; on dissolution or settlement, the firm is responsible for returning the amount after considering profits, losses and other adjustments. Therefore partners’ capital is shown on the liabilities side. It is not sales, because no revenue is earned merely by receiving capital; it is not a cash expense; and it is not an asset belonging to a customer.

Debit current balance shows amount in favour of firm. Therefore it may be treated like a recoverable asset.

In fixed capital method both accounts are prepared to separate capital and regular adjustments. This is a basic exam point.

When there is no indication of current accounts fluctuating method is generally assumed. Then all adjustments are recorded in capital accounts.

Fixed capital changes only when additional capital or capital withdrawal occurs. Adjustments like profit and drawings go to current account.

Under fluctuating method capital increases if credit items exceed debit items. So profit salary or interest may be more than drawings.

A credit balance is written as balance carried down on debit side to balance the account. Next year it comes on credit side.

Debit closing balance becomes debit opening balance next year. It may show amount recoverable from partner.

The governing concept is the fluctuating-capital method, under which interest on capital, profit or loss and drawings are recorded directly in the partner’s capital account. Interest on capital increases A’s capital by ₹6,000, while A’s share of loss decreases it by ₹12,000. Since there are no drawings, there is no further deduction. The calculation is: opening capital ₹1,00,000 + interest ₹6,000 − share of loss ₹12,000 = ₹94,000. Therefore option A is correct. Option B adds interest but ignores the loss, option C subtracts both amounts, and option D incorrectly adds the loss.

Goods can also be capital contribution. Therefore forty five thousand plus fifteen thousand gives sixty thousand capital.

When salary becomes due current account is credited and on payment it is reduced. This keeps capital account fixed.

Commission due increases the partners claim. Under fluctuating method it is credited to capital account.

Capital is partners ownership contribution while loan is a separate payable amount. Do not mix both accounts in exams.