If the firm follows fixed capital method and the new partner does not bring goodwill where can the goodwill adjustment generally be made?

Correct answer: In current accounts

The correct answer is A: the adjustment is generally made through current accounts. Under the fixed capital method, each partner’s Capital Account is kept unchanged except for permanent changes in capital. Routine adjustments such as goodwill, drawings, interest and profit or loss are recorded in Current Accounts. If the incoming partner does not bring goodwill, the amount due to the sacrificing partners can therefore be adjusted through their Current Accounts, according to the agreed terms. Option A is correct because current accounts are used for such changes when capitals are fixed. Option B, cash sales account, records sales revenue and has no role in partner goodwill adjustment. Option C, purchases account, records goods bought for resale and is unrelated to partners’ claims. Option D, bank loan account, records borrowing from a bank and cannot represent the partners’ goodwill compensation. The important distinction is: fixed capital does not mean no adjustment; it means adjustments are kept out of Capital Accounts and made in Current Accounts.