Under the fixed capital method, the capital of the partners shall remain fixed unless additional capital is introduced or a part of the capital is withdrawn as per the agreement between the partners.Which among the following is NOT a feature of the fixed capital method?
- AThe partners' capital accounts will always show a credit balance.
- BAll adjustments for drawings, salary, interest on capital, etc., are posted (transferred) in the capital accounts.
- CUnder this method, two accounts are maintained for each partner.
- DThe partners' current account, on the other hand, may show a debit or a credit balance.
Solution & Step-by-step Explanation
Under the fixed capital method, all operational adjustments such as drawings, interest on drawings, salary, commission, share of profits or losses, and interest on capital are explicitly posted to the Partner's Current Account, not the Capital Account. Therefore, statement B is incorrect, making it the right choice.