Capital Accounts

Interest on capital is an amount allowed to partner and may be given before profit sharing. It is credited in the account.

To equalize capitals excess capital is reduced or lower capital is increased. Choose the method according to question condition.

Capital method decides whether adjustments go to capital account or current account. This is the first step in solving the question.

Additional capital is added to the fixed capital account. So Bs capital increases from Rs 60000 to Rs 75000.

Under fluctuating capital salary and profit are added and drawings are deducted. Rs 85000 plus Rs 30000 minus Rs 10000 equals Rs 105000.

Under fixed capital method normal adjustments are recorded in current account. This keeps the capital account fixed.

Drawings are a debit item and reduce the credit balance. Rs 9000 minus Rs 5000 leaves Rs 4000 debit.

The debit balance is set off against the credit item of interest. Rs 8000 minus Rs 3000 equals Rs 5000 credit.

Direct answer: Option A, credit in A’s account. The liability belonged to the firm, but partner A paid it from personal money. This means A has provided money to the firm and the firm now owes A, so A’s claim increases. Step by step: first identify the nature of payment—it settles a firm liability, not A’s personal expense; next identify the source—A’s private bank account; therefore the firm has received a benefit from A; finally record a credit in A’s capital account under the fluctuating method or in A’s current account under the fixed-capital method. Option A is correct. Option B, debit, would reduce A’s claim and would be suitable for personal withdrawals, not payment of a firm liability. Option C, drawings, is wrong because the payment was for business. Option D, no effect, is wrong because the firm’s liability was settled and A became entitled to reimbursement. Exam cue: partner pays firm expense or liability personally—credit the partner.

Withdrawal of goods for personal use is treated as drawings. Journal entry is typically: Drawings A/c Dr. 4,500 To Purchases/Stock A/c 4,500 (or appropriate inventory account). Drawings are debited to the partner’s account and ultimately reduce the partner’s capital. Option B is wrong because crediting the partner’s account would incorrectly increase their balance; options C and D are incorrect since a withdrawal is neither an increase in capital nor firm revenue. Exam tip: whenever you see 'personal use' or 'withdrawn by partner', record it as drawings (debit partner's drawings/current account).

Direct answer: Option A, Rs 55,000. In the fluctuating capital method, loss and drawings are both debited to the partner’s capital account. Therefore both reduce the opening capital. Calculation: opening capital Rs 70,000 − loss share Rs 6,000 = Rs 64,000; then Rs 64,000 − drawings Rs 9,000 = Rs 55,000. Option A is correct. Option B, Rs 85,000, incorrectly adds amounts and ignores that loss and drawings reduce capital. Option C, Rs 64,000, subtracts the loss but forgets the drawings. Option D, Rs 61,000, does not follow either correct subtraction sequence and has no accounting basis here. No interest, salary, or other adjustment is given, so none should be invented. Memory cue: in fluctuating capital, loss and drawings go on the debit side and reduce capital.

Both the capital account and the current account balances are in A's favour (credit), so for total position you add them: Rs 100,000 + Rs 15,000 = Rs 115,000 credit. Option B would be correct only if the current account were a Rs 15,000 debit (then Rs 100,000 − Rs 15,000 = Rs 85,000). Options C and D are wrong because they treat the sign of the balances incorrectly. Exam tip: always check whether the current account balance is credit or debit—add credits, subtract debits from capital.

Debit balance of current account reduces the partners claim. Rs 75000 minus Rs 6000 equals Rs 69000 credit.

Direct answer: Option A, Rs 18,000. Under the fixed-capital method, the capital balance itself is kept unchanged for routine adjustments. Items such as interest on capital and partner salary are therefore credited to the partner’s current account. Add the two credits: interest on capital Rs 7,000 + salary Rs 11,000 = Rs 18,000. Option A is correct. Option B, Rs 4,000, is the difference and is not required. Option C, Rs 11,000, includes salary only and ignores interest on capital. Option D, Rs 7,000, includes interest only and ignores salary. Both items benefit the partner and increase the credit balance of the current account. This answer assumes there are no other current-account items mentioned in the question. Memory cue: fixed capital stays fixed; routine credits go to current account.

Direct answer: Option A, Rs 17,000. Under the fluctuating capital method, drawings and the partner’s share of loss are both debited to the capital account. Calculate step by step: drawings = Rs 12,000; share of loss = Rs 5,000; total debit = Rs 12,000 + Rs 5,000 = Rs 17,000. Option A is correct. Option B, Rs 7,000, is not the sum and does not represent either the stated debit total. Option C, Rs 12,000, includes drawings only and ignores the loss share. Option D, Rs 5,000, includes the loss only and ignores drawings. Drawings reduce capital because resources leave the firm for personal use. Loss also reduces capital because the partner bears that share of the firm’s loss. Memory cue: in fluctuating capital, every reduction is debited; add all debit items.

Opening capital and additional capital together are Rs 95000. Closing capital is Rs 88000 so withdrawal is Rs 7000.

To reach closing capital profit must also cover drawings. Rs 54000 minus Rs 50000 plus Rs 9000 equals Rs 13000.

Core concept: Interest on capital = Capital × Rate. B's capital is Rs 75,000 and the rate is 8%, so interest = \(75,000\times8\%=75,000\times\dfrac{8}{100}=6,000\) rupees. Option C (Rs 10,000) is incorrect because it equals 8% of the combined capitals (A+B), a common mistake; we must compute interest on B's individual capital. Exam tip: multiply first and then divide by 100; for quick work remember 8% = 2/25.

Drawing at the beginning of year carries interest for full year. Twelve percent of Rs 18000 is Rs 2160.

For withdrawal at year end no time remains for that year. Therefore interest is generally taken as zero.

The governing distinction is between fixed capital and fluctuating capital methods. Under the fixed capital method, the original capital normally remains unchanged unless additional capital is introduced or some capital is permanently withdrawn. Recurring appropriations and adjustments, such as a partner’s share of profit, salary, commission, and interest on capital, are recorded in the partner’s current account. Therefore, the partner’s share of profit is credited to the current account and not added to the fixed capital account, making option A correct. Additional capital and withdrawal of capital affect the capital account itself, while opening capital is the initial balance of that account. Thus, the other choices do not fit the stated rule.

Partner commission is payable to him so it is credited to capital account. The other items reduce the partners claim.

The governing concept is the legal and accounting distinction between a partner’s capital and a partner’s loan to the firm. Capital represents the partner’s ownership interest and is generally subject to the partnership agreement regarding profit, loss, and return of capital. A loan, in contrast, is a separate liability of the firm to the partner. It normally has a repayment obligation and may carry interest under the agreement or applicable partnership rules. Therefore, the loan should be recorded in a separate Partner’s Loan Account rather than merged with the capital account, making option A correct. Options B and C misclassify the transaction, while option D is the opposite of the true liability position.

Direct answer: Option A, it will be credited. Postage was a business expense of the firm, but the partner paid it personally. Thus the firm has benefited and owes the partner Rs 2,500. Step by step: recognise the postage as a firm expense; recognise that no firm cash was used; recognise that the partner supplied personal cash; therefore the partner’s claim against the firm increases by Rs 2,500. The partner’s capital account is credited under the fluctuating method, or the current account is credited under the fixed-capital method. Option A is correct. Option B, debit, would mean the partner owes the firm or that his claim has fallen, which is the opposite. Option C, drawings, means money taken from the firm for personal use; this payment was for firm business. Option D, loss, describes the firm’s expense, but it is not the entry in the partner’s account and does not explain the reimbursement claim. Memory cue: personal payment for firm expense equals partner credit.

A partner's personal insurance is a personal expense, not a firm expense. When the firm pays such a personal cost on behalf of the partner it is treated as the partner's drawings. Accounting entry: Debit — Partner's Drawings ₹6,000; Credit — Bank/Cash ₹6,000. The closest distractor (B) is wrong because only expenses incurred for business operations are charged to business expense; a personal expense paid by the firm is treated as drawings. Options C and D are also incorrect since the payment does not increase capital or represent profit. Exam tip: first decide whether an expense is personal or business—personal payments by the firm are recorded as drawings.