Identify the true statement in respect of the Fixed Capital Method for a Partnership Firm:
- AThe Balance of Partners' Capital Account will be positive/credit.
- BThe Balance of Partners' Capital Account may be negative / Debit or may be nil/zero.
- CThe Balance of Partners' Capital Account may be negative / Debit or may be positive/Credit.
- DThe Balance of Partners' Capital Account will never be positive/Credit.
Solution & Step-by-step Explanation
Under the Fixed Capital Method, two accounts are maintained for each partner: the Capital Account and the Current Account. Only transactions relating to introduction or permanent withdrawal of capital are recorded in the Capital Account. Because a partner cannot permanently withdraw more capital than they have introduced, the balance of the Partners' Capital Account will always show a positive (credit) balance. All operational adjustments (drawings, profit share, interest, etc.) are recorded in the Current Account, which can show a positive or negative balance.