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What is the simplest indication of the fixed capital method?

Answer and explanation

Correct answer: Capital account shows only permanent changes in capital

Under the fixed capital method, partners' capital accounts show only permanent changes (e.g., permanent capital introduced or permanently withdrawn). Recurring items such as interest on capital, partner's salary, drawings and share of profit are shown in separate current accounts. Hence option A is correct. Option C may seem plausible but is wrong — current accounts are in fact prepared to record the recurring transactions so that the capital account remains fixed. Exam tip: look for words like "only permanent" or "fixed" in the question to identify the fixed capital method.

Related tags

Fixed CapitalCapital AccountPartnership AccountsIdentificationCapital AccountsPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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