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Fixed and Fluctuating Capital Accounts - Partnership Accounts, Advanced Corporate Accounting | Advanced Corporate Accounting - B Com PDF Download

Methods of Maintaining Capital Accounts of Partners: There are two methods of maintaining capital accounts:

a. Fixed Capital Method:  Under this method two accounts are maintained for each partner, 1. Capital Account and 2. Current Account. The capitals of the partners shall remain fixed unless additional capital is introduced or a part of the capital is withdrawn. All items like share of profit or loss, interest on capital, drawings, interest on drawings, etc. are recorded in Partner’s Current Account.

b. Fluctuating Capital Method: Under this method, only one account, i.e. capital account is maintained for each partner. All the adjustments relating to  Introduction or withdrawal of capital, share of profit and loss, interest on capital, drawings, interest on drawings, salary or commission to partners, etc are recorded in the capital accounts of the partners. 

                                   

Capital A/cs          Amount in Rs.

Particulars

A

B

Particulars

A

B

To Bank

20000

 

By Balance b/f

120000

80000

To Balance c/f

100000

100000

By Bank A/c

 

20000

 

120000

100000

 

120000

100000

 

                                   

Current A/cs       Amount in Rs.

Particulars

A

B

Particulars

A

B

To Drawings A/c

15000

10000

By Interest on Capital

7500

5000

To Interest on Drawings

2000

1000

By Salary

5000

-

 

 

 

By Commission

-

2000

To Balance c/f

13500

8000

By P & L Approp. A/c

18000

12000

 

30500

19000

 

30500

19000


Fluctuating Capital Method:

                                                   

 Capital A/cs      Amounts in Rs.

Particulars

A

B

Particulars

A

B

To Bank (withdraw cap)

20000

 -

By Balance b/f

120000

80000

To Drawings A/c

15000

10000

By Bank (Further cap)

-

20000

To Interest on Drawing

2000

1000

By Interest on Capital

7500

5000

To Balance c/f

113500

108000

By Salary

5000

-

 

 

 

By Commission

-

2000

 

 

 

By P & L Approp. A/c

18000

12000

  150500 119000   150500

119000

The document Fixed and Fluctuating Capital Accounts - Partnership Accounts, Advanced Corporate Accounting | Advanced Corporate Accounting - B Com is a part of the B Com Course Advanced Corporate Accounting.
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FAQs on Fixed and Fluctuating Capital Accounts - Partnership Accounts, Advanced Corporate Accounting - Advanced Corporate Accounting - B Com

1. What is the difference between fixed and fluctuating capital accounts in partnership accounting?
Ans. Fixed capital accounts refer to the capital contributed by partners that remains constant throughout the partnership, regardless of profits or losses. Fluctuating capital accounts, on the other hand, represent the changes in partners' capital due to the allocation of profits, losses, additional contributions, or withdrawals.
2. How are fixed capital accounts determined in partnership accounting?
Ans. Fixed capital accounts are determined by the initial capital contributions made by each partner at the beginning of the partnership. These contributions are typically agreed upon and documented in the partnership agreement, indicating the specific amount of capital each partner will contribute.
3. What factors cause fluctuation in capital accounts in partnership accounting?
Ans. Fluctuations in capital accounts can be caused by various factors, including the allocation of profits and losses, additional capital contributions, and withdrawals by partners. These changes are typically recorded in the partnership's financial statements to reflect the partners' updated capital balances.
4. How are profits and losses allocated in partnership accounting?
Ans. Profits and losses in partnership accounting are typically allocated based on the agreed-upon sharing ratio stated in the partnership agreement. The sharing ratio determines how the profits and losses will be distributed among the partners, taking into consideration their respective contributions, responsibilities, and ownership interests in the partnership.
5. Can partners withdraw funds from their fluctuating capital accounts in partnership accounting?
Ans. Yes, partners can withdraw funds from their fluctuating capital accounts in partnership accounting, subject to the terms and conditions outlined in the partnership agreement. However, it is important to note that such withdrawals may affect the partners' capital balances and can lead to changes in the profit-sharing ratios if not properly accounted for.
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