Maintenance of Capital Accounts of Partners: Fixed and Fluctuating Capital Method Video Lecture - Commerce

we also have a concept of a fixed and
fluctuating capital accounts what we did
before in the example before is a case
of a fluctuating capital account where a
had had a capital original capital of 1
lakh
we had 60,000 then the whole amounts
changed because of the interest on
capital because of salary to be because
of shearing off profits so at the end of
the year the amount of capital is
different from that at the beginning of
the year since the partner since the
capital accounts changes like this
depending on the distribution of the
profits it is called fluctuating capital
account so under fluctuating capital
account interest salary share of profit
all are adjusted in the partners capital
account they are all adjusted in the
partners capital account but there is
another method by which the partners
capital account is kept fixed so if s
began with a capital account of 1 lakh
and we began with 60,000 it would always
be 1 luck and 60,000 unless unless they
bring in additional capital or they
withdraw a part of the capital they want
to win draw their capital otherwise it
would remain the same so then what would
we do about adjustments like interests
are we share of profit etc these are
routed through another account called
the partners current account partners
current account so it becomes profit and
loss appropriation account debit to
partners current accounts instead of
partners capital accounts the current
account in effect in
is the same as the capital account but
the only difference is that we the
partners have agreed to keep their
capital accounts fixed so that it shows
exactly the amount of capital that is
contributed by them all other
adjustments with respect to interest on
capital interest on drawings salaries
Commission profit sharing of profits etc
are all routed to the partners current
data so in a balance sheet we would have
not only the partners capital account
which is fixed here of the year unless
unless like I said before they bring in
additional capital or they withdraw some
amount of their capital otherwise
capital remains fixed so in the balance
sheet we'll have partners capital
account as well as another account
called partners current accounts so each
partner will have a capital account and
a current account a capital account and
a current account
look at this example here you have
partners current accounts we take the
same example of a and B ace let's look
at the partners capital accounts first
it began with one lakh and sixty
thousand it closes with one lakh and
sixty thousand balance carried down also
one lakh and sixty thousand so what
happened to that impressed on capital to
the salary and to the share of profits
this has gone putnis it has gone to the
partners current accounts by profit and
loss appropriation account six thousand
and three thousand six hundred salary
only we got salaries thirty six thousand
three thousand per month and their share
of profit was seventeen two hundred and
seventeen two hundred so they have now a
balance of a has a current account
balance of twenty three 200 and B is
capital account is fifty six thousand
eight
red fifty six thousand eight hundred so
in the balance sheet in the balance
sheet on the liability side of the
balance sheet you would have ace capital
account
one lakh we would have B's capital
account sixty thousand will have s
current account 23 two hundred and B is
current account fifty-six
eight hundred this would come on the
liability side of the balance sheet this
is actually the total of the capitals of
the partners
however capital is kept fixed at one
lakh in sixty thousand all other
adjustments all other fluctuations are
routed through another account quality
partners current account